Spotlight

ICLE Brief to the 9th Circuit in Epic Games v Google

Daniel J. Gilman & Geoffrey A. Manne • October 23, 2024

STATEMENT OF INTEREST The International Center for Law & Economics (“ICLE”) is a nonprofit, non-partisan global research and policy center aimed at building the intellectual . . .

STATEMENT OF INTEREST

The International Center for Law & Economics (“ICLE”) is a nonprofit, non-partisan global research and policy center aimed at building the intellectual foundations for sensible, economically grounded policy. ICLE promotes the use of law and economics methodologies and economic learning to inform policy debates and has longstanding expertise evaluating antitrust law and policy.

ICLE has an interest in ensuring that antitrust law promotes the public interest by remaining grounded in sensible rules informed by sound economic analysis. That includes advising against far-reaching injunctions that could deteriorate the quality of mobile ecosystems, thereby harming the interests of consumers and app developers.[1]

INTRODUCTION AND SUMMARY OF ARGUMENT

The district court issued an injunction that would alter agreements between Google and over 500,000 non-party U.S. app developers and require redesign of Google’s app store, Google Play. It has purportedly done so to remediate the antitrust claims of a single competitor, Epic Games, which has no apps on Google Play; and it has done so notwithstanding that Epic lost a parallel antitrust challenge to Apple following a bench trial, Epic Games, Inc. v. Apple Inc., 559 F. Supp. 3d 898 (N.D. Cal. 2021), a decision affirmed by this Court. Epic Games, Inc. v. Apple Inc., 67 F.4th 946 (9th Cir. 2023). The injunction poses risks to the safety, security, and reputation of Google Play—risks highly likely to harm competition between Google Play and its leading competitor, Apple’s App Store. That harm to competition would, in turn, harm consumers on both sides of the Google Play platform: end-consumers of the apps available on the platform and the app developers who depend on the platform to reach those end-consumers.

A stay of the district court’s injunction pending appeal should be granted because, inter alia, there is a substantial likelihood that Google will win its appeal on the merits and because the terms of the injunction are inconsistent with established case law.

First, the injunction is predicated on an erroneous market definition that excludes Apple from the relevant market. That error obscures the nature of competition at issue in the case, and it supports a false ascription of market power to Google Play. Having improperly permitted the jury to exclude Apple from the relevant market, the district court did not permit proper consideration of the pro-competitive justifications for Google’s conduct, which are significant in a two-sided transaction market like the one in which Google competes. Compounding the problem, the injunction threatens to undermine many of the pro-competitive benefits of Google’s conduct.

Second, the injunction would impose a duty to deal that is generally repudiated under the antitrust laws. While a narrow duty to deal may be imposed as a remedy under special circumstances, the injunction issued below exceeds the bounds of established exceptions to the general rule.

Given the significant risks posed by the district court’s injunction, and the likelihood of Google’s ultimate success in its appeal on the merits, ICLE urges the Court to grant Google’s motion and issue a stay of the district court’s injunction pending appeal.

ARGUMENT

I. GOOGLE IS LIKELY TO WIN ITS APPEAL ON THE MERITS.

Google “has made a strong showing that [it] is likely to succeed on the merits”—a key factor for courts deciding whether to issue a stay pending appeal. Levia-Perez v. Holder, 640 F.3d 962, 964 (9th Cir. 2011) (per curiam).

A. Google Play And Apple’s App Store Compete In the Same Product Market.

This Court has already recognized parallels between Epic’s antitrust and state law challenges to Google Play’s policies and Apple’s App Store policies. Epic Games, Inc. v. Apple Inc., 67 F.4th 946, 969 n.3 (9th Cir. 2023), and it has rightly rejected Epic’s assertion of a single-brand market. Id. at 980–81. The finding of a multi-brand market in Epic v. Apple was correct and should apply here. Ignoring the competition between Apple’s App Store and Google Play creates a false sense of Google’s market share, as Google and Apple compete for apps and, importantly, to have app developers develop apps for their platforms first.

B. Google’s Conduct Has Significant Pro-Competitive Justifications.

The district court correctly recognized that “the Google Play Store is a “two-sided platform market” that “offers products or services to two different groups who both depend on the platform to intermediate between them.” In re Google Play Store Antitrust Litig., 3:20-cv-05671-JD, Dkt. No. 850, at ECF p. 22 (N.D. Cal. Dec. 6, 2023) (Final Jury Instructions, Instruction No. 18). For Google Play, “developers who wish to sell their apps” are on one side of the market and “consumers that wish to buy those apps” are on the other. Id.

Firms in two-sided markets commonly use vertical restrictions like those challenged by Epic—including anti-steering provisions—to serve legitimate aims. These legitimate aims include allowing for the recoupment of investments, and to provide tangible procompetitive benefits such as increased privacy, security, and market-wide output. Given this, the Supreme Court, in Ohio v. Am. Express Co., 585 U.S. at 544–45 (“Amex”), ruled that “there is nothing inherently anticompetitive about . . . antisteering provisions.” Id. at 551. Such vertical provisions can, among other things, prevent merchants from free-riding, thereby increasing the availability of “‘tangible or intangible services or promotional efforts’ that enhance competition and consumer welfare.” Id. at 2290 (quoting Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877, 890-91 (2007)).

The benefits of these provisions are conspicuous when app stores are correctly assessed holistically, as two-sided transaction markets; conversely, they are obscured if one applies “one sided logic to two sided markets.” Wright, J. (2004) One-sided Logic in Two-sided Markets. Review of Network Economics, Vol. 3 (Issue 1). Just as in Amex, there are procompetitive reasons for the provisions at issue.

First, as indicated above, the contractual provisions help prevent free-riding, which, if left untreated, would undermine Google’s incentives to maintain and improve Google Play, thereby leading to diminished product quality and reduced output. The problem of free-riding is front and center in the district court’s injunction. Google owns valuable resources that it has created and steadily improved. These include Google Play, which provides users in the Android ecosystem with a convenient and secure means of acquiring the applications (Tr. 1141:2–17) that are “essential components of smartphones” (Tr. 2456:18–20). Among other things, the injunction would require Google to make its catalog of two-plus-million apps appear in competitors’ app stores and to distribute rival app stores. Epic would also like free access to Android users and, specifically, Google Play. None of these parties would be in position to maintain the Android ecosystem in the same way Google does. Given this, reducing the fees Epic pays to Google may benefit Epic while harming consumers, as Google would have less incentive to invest in its ecosystem.

Second, steering consumers to other payment systems, together with catalog sharing and third-party app store distribution, could expose Google Play users to privacy, security, and safety issues, among others. These are moving targets online, but the injunction would limit Google’s efforts to serve these critical consumer interests, as Google would have to prove that any measures it takes with respect to third-party app stores and their apps “are strictly necessary and narrowly tailored.”

In brief, the injunction undercuts the procompetitive rationale recognized by the Supreme Court in Amex and by this Court in Epic v. Apple. Absent intervention by this Court, Google will have to comply with a nationwide injunction that undercuts these benefits. That is directly relevant to the merits of the remedies decision below, as there is no credible argument that the broad sweep of the injunction—across all of Google’s agreements with all app developers who do, or will, market their apps via Google Play—is necessary to remedy the alleged harm to the sole plaintiff in this case. It also is relevant to the question of liability where the district court’s jury instructions precluded the jury’s consideration of precisely the cross-market effects contemplated in Amex.

II. ANTITRUST GENERALLY REPUDIATES A DUTY TO DEAL, IN CONTRAST WITH THE DECISION AND INJUNCTION BELOW

Antitrust law largely repudiates the notion that firms have a “duty to deal.” As the Supreme Court has observed, “as a general matter, the Sherman Act “does not restrict the long recognized right of [a] trader or manufacturer engaged in an entirely private business, freely to exercise his own independent discretion as to parties with whom he will deal.” Verizon Communications Inc. v. Law Offices of Curtis Trinko, 540 U.S. 398, 408 (2004) (quoting United States v. Colgate & Co., 250 U.S. 300, 307 (1919)). That general antitrust principle is “not unqualified.” Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U. S. 585, 601 (1985). However, as the Trinko Court made clear, Aspen Skiing “is at or near the outer boundary of § 2 liability.” Trinko, 540 U.S. at 409. At that outer boundary, to terminate dealing with an established customer, when that decision makes no economic sense but for its anticompetitive effects, may be anticompetitive. Id.

The district court correctly observed this general principle in Jury Instruction No. 24: “As a general rule, businesses are free to choose the parties with whom they will deal, as well as the prices, terms, and conditions of that dealing. . . . It is not unlawful for Google to prohibit the distribution of other app stores through the Google Play Store, and you should not infer or conclude that doing so is unlawful in any way.”

Nonetheless, the district court has issued an injunction that would, inter alia, require Google to make its catalog of apps available in competitors’ app stores and to distribute rival app stores through the Google Play Store. The district court reasoned that, “[i]if the jury finds that monopolization or attempted monopolization has occurred, the available injunctive relief is broad, including to terminate the illegal monopoly, deny to the defendant the fruits of its statutory violation, and ensure that there remain no practices likely to result in monopolization.” In re Google Play Store Antitrust Litigation, 3:20-cv-05671-JD, Dkt. No. 701, at 6 (N.D. Cal. Oct. 7, 2024) (quoting Optronic Techs., Inc. v. Ningbo Sunny Elec. Co., Ltd., 20 F.4th 466, 486 (9th Cir. 2021)).

The case law does not, however, suggest that any and all remedies are warranted given a finding of antitrust liability. First, “relief must be based on a ‘clear indication of a significant causal connection between the conduct enjoined or mandated and the violation.’” Optronic, 20 F.4th at 486 (quoting United States v. Microsoft Corp., 253 F.3d 34, 105 (D.C. Cir. 2001)). In Microsoft, the causal connection between conduct and harm was merely inferred, not proven. At the remedy phase, that was deemed insufficient to sustain a remedy allegedly aimed at correcting anticompetitive harm. Here, however, the connection between the conduct to be remedied and the alleged harm is not even alleged (let alone inferred). Indeed, it was specifically disclaimed by the court in Jury Instruction No. 24.

Also, in Optronic, this court sought to remediate discriminatory contract terms, providing that all similarly situated customers be provided access on similar terms. Analogous remedies may be a feasible in circumstances where the antitrust harm alleged stems from discriminatory treatment. See also, e.g., Associated Press v. United States, 326 U.S. 1 (1945).

Imposing a duty to deal with new firms, on new terms, is a different matter entirely. In Associated Press, for example, “[t]he Court did not reach the question whether AP was obliged to admit any newcomers at all. Although Justice Frankfurter’s concurring opinion agreed with the divided lower court that a business clothed in a public interest must deal with all, the Court expressly disclaimed any such ‘public utility concept.’” Herbert Hovenkamp, Unilateral Refusals to Deal, Vertical Integration, and the Essential Facility Doctrine 10 (University. of Iowa Legal Studies Research Paper No. 08-31, Jul. 14, 2008), http://bit.ly/33Q5fIM. And in MetroNet this court recognized that Trinko does not require a defendant to provide access to a competitor if it isn’t already providing access elsewhere. See MetroNet Servs. Corp. v. Qwest Corp., 383 F.3d 1124, 1132 (9th Cir. 2004).

A remedy mandating the distribution of app stores is equivalent to a determination that the failure to distribute constitutes a violation of the law—contradicting both the jury instruction and settled case law. Imposing a duty to deal without a showing of anticompetitive effect imposes liability by inference: in effect, it circumvents rule of reason analysis and assumes anticompetitive harm. See Id. at 28 (“[Unilateral refusal to deal under Sec. 2] comes dangerously close to being a form of ‘no-fault’ monopolization[.]”).

As noted above, privacy, security, and platform management challenges are ubiquitous, moving targets from both technical and business standpoints, and the injunction would limit Google’s ongoing efforts to serve critical consumer interests, as Google would have to prove that any measures it takes with respect to third-party app stores and their apps “are strictly necessary and narrowly tailored.” That requirement is at odds with basic antitrust principles, as it assigns to an untested, court-created committee countless management decisions about both Google Play and the Android operating system. That is tantamount to central planning. Economics has, with increasing rigor and empirical evidence, documented the disadvantages of central planning since Adam Smith’s The Wealth of Nations. See Ronald H. Coase, Lecture to the Memory of Alfred Nobel, Dec. 9, 1991, https://www.nobelprize.org/prizes/economic-sciences/1991/coase/lecture/. Courts, too, have long recognized that they are ill-suited to balancing the “benefits of an improved product design against the resulting injuries to competitors.” See Allied Orthopedic Applicants Inc. v. Tyco Health Care Grp. LP, 592 F.3d 991, 991, 1000 (9th Cir. 2010); see also Trinko LLP, 540 U.S. at 408.

CONCLUSION

For the foregoing reasons, we urge the Court to stay the district court’s injunction pending Google’s appeal on the merits.

[1] ICLE represents that no party’s counsel authored this brief in whole in in part, no party or party’s counsel contributed money that was intended to fund preparing or submitting the brief, and no person—other than ICLE and its counsel—contributed money that was intended to fund preparing or submitting the brief. ICLE files this brief with the consent of all parties.

ICLE Comments on Art. 102 TFEU Draft Guidelines

Geoffrey A. Manne, Dirk Auer, Lazar Radic, & Mario A. Zúñiga • October 31, 2024

Introduction We appreciate the opportunity to respond to this consultation regarding the Commission’s “Draft Guidelines on the application of Article 102 of the Treaty on . . .

Introduction

We appreciate the opportunity to respond to this consultation regarding the Commission’s “Draft Guidelines on the application of Article 102 of the Treaty on the Functioning of the European Union to abusive exclusionary conduct by dominant undertakings” (“Draft Guidelines”). Given that the purpose of guidelines is to provide information on enforcement practice and likely litigation outcomes by reflecting the state of the art in a certain area of the law,[1] it is reasonable to assess these guidelines based on two main criteria: (i) their legality and (ii) their clarity.

The first question that must be answered is whether the Draft Guidelines accurately reflect current legal and economic thinking on exclusionary abuses under Art. 102 TFEU, as understood by the General Court (“GC”) and the European Court of Justice (“ECJ”) (together: “the Courts”). A second related question is whether the Draft Guidelines enhance the clarity and predictability of Art.102 TFEU enforcement, such that they mark a step forward from their predecessor, the 2008 Guidance Paper on Art. 82 [102 TFEU] Enforcement Priorities (“Guidance Paper”). While the answer to this second question hinges largely on the answer to the first, they are not necessarily the same. Esoteric guidelines may faithfully depict the law, while crystalline ones could nonetheless get the law wrong.

Unfortunately, the Commission’s Draft Guidelines offer the worst of both worlds, employing convoluted language to convey an interpretation of Art. 102 TFEU caselaw that is tenuous, at best. In this way, the Draft Guidelines not only fail to enhance predictability, but could also influence market conduct in ways that are at odds with the law’s intent.[2]

To a significant extent, these problems stem from the Draft Guidelines construing their own repudiation of effects-based analysis as the will of the courts, rather than that of the Commission itself. As Commission officials themselves have observed, the “Guidance Paper” that preceded the current Draft Guidelines:

contributed to moving away from a formalistic approach to enforcing Article 102 TFEU, where cases were prioritized based on per se criteria, to an effects-based approach where priorities are set taking into account the potential effects of the given conduct, through the analysis of market dynamics, in line with mainstream economic thinking.[3]

Unfortunately, the Draft Guidelines reverse that impetus by resorting to formalistic categorizations and watering down effects-based analysis. But this reading of Art. 102 TFEU is at odds with the effects-based approach enshrined in the Guidance Paper and embraced by the Courts, including in such recent seminal decisions as Intel, SEN, Unilever, and Intel Renvoi.[4]

The Commission’s Draft Guidelines are motived by the belief that more “vigorous” enforcement of Art. 102 TFEU is needed:

in view of growing market concentration in various industries and the digitisation of the Union economy, which makes strong network effects and “winner-takes-all” dynamics increasingly widespread, it is important that Article 102 TFEU is applied vigorously and effectively.[5]

But this belief appears to be built upon dubious premises. Market concentration “is not, in itself, a bad thing; indeed, recent research challenging the standard account demonstrates that much observed concentration is driven by increased productivity, rather than by anticompetitive conduct or anticompetitive mergers.”[6] There’s no empirical evidence that market concentration has been increasing or that it is necessarily leading to increased market power or harm to the competitive process or consumers.[7] Moreover, moving competition law away from the “effects-based” approach (or “more-economic” approach) is apt to make it more hostile to novel business conduct and to punish pro-competitive business conduct.[8] From a policy perspective, it would be unwise, to say the least, to take such a turn at a time when Europe is lagging other global markets in productivity and competitiveness.[9]

Against this backdrop, our comments proceed as follows. Section I discusses the Draft Guidelines’ problematic reliance on presumptions that have little basis in the ECJ caselaw. Section II critiques the weakened role of effects-analysis that permeates the Draft Guidelines. Finally, Section III concludes by arguing that the Draft Guidelines will fail to achieve their aims because they neither offer clear guidance to firms nor a faithful depiction of European caselaw on the abuse of dominant positions.

I. Presumptions of Illegality: A Consolidation of the Caselaw that Also Pushes Its Boundaries

The Draft Guidelines attempt to reinstate a form-based approach to Art. 102 TFEU, under which certain categories of conduct are presumptively anticompetitive and, depending on the specific conduct in question, subject to different rebuttal thresholds.

This approach, however, has been forcefully repudiated by the European Court of Justice, particularly in such landmark rulings as Intel, Unilever, and Servizio Enel.[10] In simple terms, there are no strict presumptions of illegality under Art. 102 TFEU, and much less “naked” restrictions of competition. Instead, the ECJ caselaw suggests that it is always up to the Commission to establish that conduct is capable of foreclosing competition, with no conduct categorically presumed to have such an effect. Granted, this burden is lower when, during the administrative procedure before the Commission, defendants do not contest the Commission’s findings with supporting evidence—as outlined in Intel.[11] But that is not the same thing as saying (as the Draft Guidelines do) that certain conduct is presumptively capable of restricting competition or, worse still, amounts to a naked restriction of competition.

A. The Guidelines’ Three-Tiered System Is Not Supported by Caselaw

It is uncontroversial that a dominant firm’s behavior can only infringe Art. 102 TFEU when it is “capable of” restricting competition. With this legal requirement in mind, the Draft Guidelines draw a distinction between three different types of conduct: (i) “conduct for which it is necessary to demonstrate a capability to produce exclusionary effects”; (ii) “conduct that is presumed to lead to exclusionary effects”; and (iii) “naked restrictions.”[12]

Unfortunately, this distinction appears inconsistent with ECJ caselaw, which neither creates any strict presumptions of capability to restrict competition, nor singles out any practices as “naked” restrictions of competition under Art. 102 TFEU. What exists under Art. 102 TFEU are “soft” presumptions that, contrary to the Draft Guidelines’ assertions, do not shift the burden of proof to defendants when they have been established by the Commission. In other words, these soft presumptions do not exonerate the Commission from establishing an evidence-based theory of harm.[13]

European competition law is no stranger to presumptions. These include the presumptions that a 50% market share in a defined market amounts to a dominant position,[14] and that wholly owned subsidiaries are part of the same economic entity as their parent company.[15] Given the widespread use of presumptions throughout EU competition law—and the explicit use of this terminology by the ECJ—it is surprising to see the guidelines mobilize this concept in an area where recent caselaw does not use the term at all. The word “presumption”—in relation to conduct’s capability of foreclosure—is, indeed, nowhere to be found in recent rulings such as Intel, Google Shopping, Servizio Enel, Unilever, or Lietuvos Gele?inkeliai.[16]

The Draft Guidelines recognize in footnote 131 that “the Union Courts have not always made explicit use of the term ‘presumption’ for each one of these practices.” That is an understatement. In fact, not only do the aforementioned cases not include any reference to strict presumptions concerning conduct’s capability to foreclose competition (despite including references to other legal presumptions where relevant), they explicitly require the Commission to establish such capability on a case-by-case basis. This is perhaps nowhere clearer than in the Servizio Enel ruling, where the Court repeats the Intel requirement that:

Where a dominant undertaking submits, during the administrative procedure and with supporting evidence, that its conduct was not capable of restricting competition, the competition authority concerned is required to examine whether, in the particular circumstances, the conduct in question was indeed capable of doing so (see, to that effect, judgment of 6 September 2017, Intel v Commission, C?413/14 P, EU:C:2017:632, paragraphs 138 and 140).[17]

A careful reading of this caselaw (on which the guidelines explicitly rely to support the existence of a presumption) clearly indicates that it does not lay out any strict legal presumptions (i.e., a burden-shifting framework akin to that laid out in the Commission’s Draft Guidelines). First, the ruling clearly uses the word “submits”—rather than “shows” or “proves”—which is a clear sign that parties have no legal burden to discharge. Second, it merely requires parties to produce “supporting” evidence, with no qualifiers such as “dispositive” or “convincing.” Finally, if and when parties claim their conduct is incapable of foreclosing competition, the Commission is “required to examine whether, in the particular circumstances, the conduct in question was indeed capable of doing so.”[18] In other words, the Commission cannot merely rebut defendant’s proffered evidence, it must examine all relevant circumstances. This is categorically different from the Draft Guidelines’ provision that the Commission will “examine whether the presumption is rebutted based on the arguments and supporting evidence submitted by the dominant undertaking during that procedure.”[19] In reaching this conclusion, the Draft Guidelines thus stray from what is, arguably, the cornerstone of modern competition caselaw pertaining to Art. 102 TFEU.

Clearly, the Commission seeks to alleviate its burden of proof by creating stronger presumptions that work in its favor.[20] But in Google Shopping, the ECJ states in no uncertain terms the need to demonstrate the anticompetitive effects of the allegedly abusive conduct:

In order to find, in a given case, that conduct must be categorised as ‘abuse of a dominant position’ within the meaning of Article 102 TFEU, it is necessary, as a rule, to demonstrate, through the use of methods other than those which are part of competition on the merits between undertakings, that that conduct has the actual or potential effect of restricting that competition by excluding equally efficient competing undertakings from the market or markets concerned, or by hindering their growth on those markets…[21]

Moreover, the ECJ adds, in the same decision, that “it is for the Commission to adduce evidence capable of demonstrating to the requisite legal standard the existence of circumstances constituting an infringement. By contrast, it is for the undertaking raising a defense against the finding of such an infringement to prove that that defense must be upheld.”[22] In its recent Intel II decision, which confirms the GC Renvoi judgment annulling most of the 2009 Commission decision, the ECJ corroborates that the Commission bears the burden of proof in very clear terms, citing several precedents:

… it must be borne in mind that it is for the Commission to prove the infringements of the competition rules which it has found and to adduce evidence capable of demonstrating to the requisite legal standard the existence of the constituent elements of an infringement (see, to that effect, judgments of 6 January 2004, BAI and Commission v Bayer, C2/01 P and C3/01 P, EU:C:2004:2, paragraph 62, and of 16 February 2017, Hansen & Rosenthal and H&R Wax Company Vertrieb v Commission, C90/15 P, EU:C:2017:123, paragraph 26).[23]

The guidelines’ misstep is compounded by their insistence that capability to foreclose is established if the Commission “shows that the arguments and supporting evidence submitted by the dominant undertaking are insufficient to call into question the presumption, for instance due to the insufficient probative value of the evidence or the fact that the arguments refer to theoretical assumptions rather than the actual competitive reality of the market.” This is a requirement that is nowhere to be found in ECJ caselaw, and for which the only support the Commission cites is an ostensibly unrelated passage from the General Court’s Google Android ruling.[24]

What is true for presumptions applies a fortiori for the Draft Guidelines’ assertion that certain behavior may constitute a “naked restriction” of Art. 102 TFEU (i.e., a per-se restriction of EU competition law).[25] To support this claim, the guidelines refer to the ECJ’s recent Superleague ruling. The Commission mainly cites the following paragraph to support its assertion:

Conduct may be categorised as ‘abuse of a dominant position’ not only where it has the actual or potential effect of restricting competition on the merits by excluding equally efficient competing undertakings from the market(s) concerned, but also where it has been proven to have the actual or potential effect – or even the object – of impeding potentially competing undertakings at an earlier stage, through the placing of obstacles to entry or the use of other blocking measures or other means different from those which govern competition on the merits, from even entering that or those market(s) and, in so doing, preventing the growth of competition therein to the detriment of consumers, by limiting production, product or alternative service development or innovation (see, to that effect, judgment of 30 January 2020, Generics (UK) and Others, C?307/18, EU:C:2020:52, paragraphs 154 to 157).[26]

But the devil lies in the details—which, in this case, dispel any notion naked restrictions exist under Art. 102 TFEU. Crucially, the aforementioned paragraph cites Generics as the relevant caselaw.[27] A closer inspection of that ruling, however, clearly reveals there are no naked restrictions under Art. 102 TFEU. Indeed, the Court in Generics merely restates the Intel (and TeliaSonera) principle that:[28]

154 … [I]f such conduct is to be characterised as abusive, that presupposes that that conduct was capable of restricting competition and, in particular, producing the alleged exclusionary effects… and that assessment must be undertaken having regard to all the relevant facts surrounding that conduct.

155 In this case… the set of settlement agreements concluded on the initiative of GSK were part of an overall strategy on the part of that manufacturer of originator medicines and had, if not as their object, at least the effect of delaying the market entry of generic medicines… and, therefore, of preventing a significant fall in the prices of the originator medicines… the direct consequence of that entry would have been an appreciable reduction in GSK’s market share and an equally appreciable reduction in the sale price of its originator medicine.

Given the preceding paragraphs—particularly the Court’s requirement that “all the relevant facts” surrounding conduct must be considered—it is clear there are no “naked restrictions” under Art. 102 TFEU. Rather, there are different theories of harm where different types of evidence may be relevant to establish whether behavior is “capable” of restricting competition.

The Draft Guidelines are thus wrong to conclude that, for certain types of behavior, it is up to the defendants “to prove that in the specific circumstances of the case the conduct was not capable of having exclusionary effects.”[29] This likely explains why the Commission’s guidelines do not cite the Generics ruling, as it clearly suggests that all Art. 102 TFEU cases ultimately fall under the same general principle: namely, that the Commission must show that a defendant’s conduct is capable of restricting competition to establish an infringement of Art. 102 TFEU.

This intuition is further confirmed by the Lietuvos Gele?inkeliai ruling,[30] which the Draft Guidelines also cite to support their position.[31] Indeed, nothing in the paragraphs the Draft Guidelines cite comes close to establishing a category of “by object” restrictions under Art. 102 TFEU. Instead, those paragraphs merely establish that the so-called Bronner criteria were not applicable to the case at-hand, and that the existence of a legal obligation to provide access can be relevant for the assessment of the alleged abusive conduct. Accordingly, the Commission still needs to prove the anticompetitive impact of the conduct in question.

Last but not least, the recent ECJ Intel II ruling may be the final nail in the coffin for the notion there are naked restrictions under Art. 102 TFEU. Indeed, the case obliterates the Commission’s intent to lower the standard to prove anticompetitive conduct. While the Commission’s case rested on the premise that rebates (when the defendant is dominant) are abusive per se,[32] that was insufficient for both the GC and the ECJ:

136 In so far as the Commission relies on Intel’s dominant position, on the conditional nature of the rebates and on the existence of a strategy aiming to exclude a competitor of Intel from the market, irrespective of whether that competitor is as efficient as Intel, the arguments thus relied on in support of that complaint are based, implicitly but necessarily, on the idea that the contested rebates are abusive per se.

…

138 … Irrespective of the fact that, in themselves, the criteria relied on by the Commission do not appear to be sufficient to find an infringement of Article 102 TFEU, the General Court could not carry out such an examination, since, as it recalled, in essence, in paragraph 150 of the judgment under appeal, it cannot alter the constituent elements of the infringement found by the Commission by substituting its own reasoning for that of the author of the act the legality of which it is reviewing under Article 263 TFEU (see, to that effect, judgment of 16 June 2022, Sony Corporation and Sony Electronicsv Commission, C?697/19 P, EU:C:2022:478, paragraph 95 and the case-law cited). [33]

More importantly, Intel II also confirmed that the Commission has to demonstrate “in all cases” that the alleged anticompetitive conduct has the effect of restricting competition:

… the demonstration that conduct has the actual or potential effect of restricting competition, which may entail the use of different analytical templates depending on the type of conduct at issue in a given case, must be made, in all cases, in the light of all the relevant factual circumstances, irrespective of whether they concern the conduct itself, the market or markets in question or the functioning of competition on that market or those markets. That demonstration must, moreover, be aimed at establishing, on the basis of specific, tangible points of analysis and evidence, that that conduct, at the very least, is capable of producing exclusionary effects (judgment of 21 December 2023, European Superleague Company, C333/21, EU:C:2023:1011, paragraphs 129 and 130 and the case-law cited). (Emphasis added).[34]

In short, there is a rapidly growing body of caselaw confirming that there are no by-object restrictions of competition or strict presumptions under Art. 102 TFEU, because the Commission can never discharge its burden of proof (and shift the burden to defendants) by showing that firms’ conduct falls within a given category. Instead, so long as defendants maintain that their conduct is not capable of foreclosing competition, the burden remains firmly upon the Commission.

B. Specific Examples of Flawed Presumptions Under the Draft Guidelines

The inconsistencies discussed in the previous section (between the ECJ’s caselaw and the Draft Guidelines’ portrayal of presumptions as “naked restraints” under Art. 102 TFEU) are replicated in the guidelines’ discussion of the standards of proof applying to specific theories of harm.

For instance, the Commission proposes that, in the case of loyalty-inducing rebates (or “conditional rebates”), anticompetitive effects should be presumed.[35] In the recent Intel II judgment, however, the ECJ confirmed that exclusivity and other loyalty-inducing rebates have the same test.[36] It also confirmed that there is no strict presumption of illegality in the case of rebates.[37] The Commission is correct to claim that, in its Intel Renvoi judgment,[38] the GC concluded that loyalty-inducing rebates are presumed to be anticompetitive by their very nature. But it then clarified that this presumption is not tantamount to a per-se prohibition that would “relieve the Commission in all cases of the obligation to examine whether there were anticompetitive effects.”[39] Accordingly, even under this favorable ruling of a lower court, the Commission is still required to assess the defendants’ arguments and accompanying evidence indicating that the impugned conduct was not capable of having anticompetitive effects.[40]

Unilever applied that same principle to other exclusivity arrangements, indicating that, while exclusivity purchasing agreements by a dominant undertaking were nominally anticompetitive, the Commission must nevertheless apply the criteria from Intel to assess exclusionary effects whenever the defendant submits evidence suggesting that the conduct did not have the ability to produce anticompetitive effects.[41]

The Draft Guidelines acknowledge this in para 83, stating that, while there is a presumption against exclusive-dealing arrangements (including conditional rebates), the Commission must nevertheless take into consideration the economic evidence and the arguments put forward by the dominant undertaking. The problem is that the Draft Guidelines unduly turn the parties’ prerogative to claim their conduct is not capable of foreclosing competition into a framework of presumptions and rebuttals that is inconsistent with ECJ caselaw. In practice, the Draft Guidelines thus turn nominal presumptions de facto into per-se prohibitions, in precisely the opposite sense to that advised by the ECJ in Intel.

The Draft Guidelines also misinterpret the caselaw on exclusivity agreements (and rebates) in at least two other important ways. First, according to paragraph 139 of Intel, the Commission is under the obligation to “assess the possible existence of a strategy aiming to exclude competitors that are at least as efficient as the dominant undertaking from the market” (emphasis added).[42] The Draft Guidelines omit the latter part, referring instead to the exclusion of any actual or potential competitors. This greatly expands the reach of Art. 102 TFEU in a way that appears inconsistent with the caselaw, including the caselaw cited in paragraph 83 of the Draft Guidelines.[43] Indeed, both Unilever and Intel, the two Court authorities cited, refer to “competitors that are at least as efficient as the dominant undertaking” (emphasis added).[44] Broadcom, the other cited case, could be seen as more amenable to the Commission’s interpretation. It should be noted, however, that Broadcom is less authoritative than either Intel or Unilever, as it is not a ruling by a Court, but stems instead from a decision by the Commission.[45]

Along similar lines, the Draft Guidelines’ reading of exclusivity arrangements is in tension with another recent case: Qualcomm.[46] In Qualcomm, a case concerning exclusivity payments, the ECJ established that merely reducing the incentives of one company (Apple) to switch to another competitor (Intel) was insufficient to produce anticompetitive effects. Instead, the Court found that the Commission should have analyzed whether “exclusivity payments were capable of having an anticompetitive effect and [foreclose] at least as-efficient competitors” (emphasis added).[47] In other words, the foreclosure of one competitor is not synonymous with the foreclosure of competition.

The longstanding principle that competition law protects competition, not competitors,[48] is instrumental in demarcating pro and anticompetitive conduct.[49] The Courts have emphasized time and again that it is not the purpose of Art. 102 TFEU to “prevent an undertaking from acquiring, on its own merits, the dominant position on a market. Nor does that provision seek to ensure that competitors less efficient than the undertaking with the dominant position should remain on the market.”[50] The Commission appears to be seeking to overturn this principle by way of a subtly contrived reading of the caselaw on exclusivity arrangements that glosses over the reference to “as efficient competitors.”

Second, the Draft Guidelines’ use of “typically” downplays the Commission’s duty to assess the factors listed in paragraph 83 of the Draft Guidelines. According to the caselaw, the Commission is “required” to analyze these factors when they are brought up by the dominant undertaking (though it need not do so ex officio).[51] The Draft Guidelines also minimize the Commission’s duty to assess the existence of a possible strategy aimed at excluding as-efficient rivals: Intel and Unilever clearly state that such an assessment is required.[52] In contrast, the Draft Guidelines go out of their way to remark that it is merely facultative:

Such exclusionary strategy is not legally required to establish the conduct’s capability to produce exclusionary effects, but may play an important role in the assessment in those cases where it is established.[53]

Similarly, in the case of self-preferencing and refusals to supply, the Draft Guidelines create artificial distinctions between the different “categories” of conduct. The Draft Guidelines, indeed, suggest that there is a lower evidentiary bar for so-called “constructive refusal to supply” (“where the dominant company makes access subject to unfair conditions”),[54] in contrast to “outright refusal to supply” cases, where the dominant company completely denies access to a product or service.

Traditionally, both outright and constructive refusals-to-supply and constructive refusal-to-supply cases have both been assessed under the same Bronner criteria, which state that a refusal to supply must concern an indispensable product that is not feasibly replicable and must, furthermore, be likely to eliminate all competition in the market.[55] In the more recent Google Shopping ruling, however, the ECJ ruled that a showing of indispensability is not required to establish so-called self-preferencing infringements (a subcategory of constructive refusals to deal where a dominant favors its own downstream products or services to the detriment of its rivals’ offerings).[56] The Draft Guidelines, however, extend this limited exception to Bronner to all constructive refusals to supply. This represents a significant expansion of Art. 102 TFEU that has no clear basis in the ECJ caselaw.

Another example is tying. Paragraph 95 of the Draft Guidelines suggests that, in certain circumstances, the anticompetitive effects of tying can be presumed, though it does not clarify when. Such a presumption, however, is unknown to the caselaw, and is largely unsupported even by the cases cited in the Guidelines. In Hilti, for example, Hilti’s tying was found to infringe Art. 102 TFEU in light of the specific circumstances of the case: the fact that Hilti failed to approach the competent UK authority for a ruling that competitors’ nails were dangerous contradicted its claims that the tying was due to safety concerns.[57]

In addition, the Commission’s analysis was based on the specific circumstances of Hilti’s position, conduct, and the markets involved. For example, the Commission found that Hilti’s actions revealed a “commercial interest in stopping the penetration of the market of non-Hilti consumables since the main profit from [nail guns, nails and cartridge strips] originates from the sale of consumables, not from the sale of nail guns”[58] (emphasis added). In this context, Hilti’s behavior—which consisted, among other things, in a combination of tying, discriminatory policies against competitors, and deliberate delaying of licenses—was found to be anticompetitive.[59]

There is thus no presumption in Hilti and, indeed, it is unclear what overarching presumption about tying could be drawn from the specific circumstances of that case. If anything, Hilti embodies the opposite principle: That the exclusionary effects of tying are highly dependent on the particular context of the case, including the dominant undertaking’s position and the nature of the market at-stake.

Likewise, in Microsoft, the Commission famously undertook a lengthy examination of anticompetitive effects. And while it claimed the case involved conduct where foreclosure effects are “normally presumed,”[60] nowhere did the court confirm the existence of such a presumption. In fact, the Commission argued in the case that the GC should only undertake a limited review of its decision, precisely because the contested decision was based on complex technical and economic assessments,[61] even as it now seeks to persuade us that such economic assessments are irrelevant.

That tying is “a normal feature of commercial life, and not something that should be viewed as inherently suspicious” has also long been recognized in the literature.[62] In fact:

Manufacturing activity, by its very nature, involves the bringing together of different components, and it would be perverse to suggest that, when engaged in by a dominant firm, such behavior should be stigmatized as presumptively unlawful: the presumption should be the other way.[63] (emphasis added)

Alas, the Draft Guidelines include no such provisions on presumptively lawful tying.[64]

The upshot is that the Draft Guidelines’ discussion of specific theories of harm systematically misconstrues existing caselaw in ways that underplay the burden of proof incumbent on the Commission. Ultimately, however, it is the ECJ, and not the Commission, that draws the limits of European competition enforcement. By failing to accurately depict the law as it is, the Draft Guidelines fail to provide useful guidance to firms operating in Europe.

II. A Weakening of Effects Analysis?

Another area where the Draft Guidelines are lacking is their description of the effects analysis that has become increasingly central to European competition enforcement. Indeed, while the Draft Guidelines pay lip service to effects-based analysis under Art. 102 TFEU,[65] they ultimately fail to draw the appropriate lessons from recent ECJ rulings.

One important way in which the Draft Guidelines seek to eschew effects analysis is by suggesting that the as-efficient-competitor (AEC) test is optional. Technically speaking, it is.[66] The ECJ caselaw indicates that, while pricing practices must, as a general rule, be assessed under the AEC test,[67] competition authorities “do not have an obligation to rely always on that test in order to make a finding that a price-related practice is abusive.”[68]In practice, however, the Commission has less space to avoid the AEC test than the Draft Guidelines suggest.

First, while is true that the Commission is not obliged to conduct an AEC test ex officio, when it chooses to do so “for the sake of completion,” it follows from the caselaw that the test must be carried out properly.[69] The Commission might, of course, choose to conduct an AEC test even when it is not strictly required to do so because the AEC test is particularly useful—and persuasive—in determining whether conduct is abusive within the meaning of Art. 102 TFEU, especially in the case of pricing practices.[70] The Commission may therefore choose to conduct an AEC test preemptively in order to frame the case and minimize the chances of appeal.

Perhaps more importantly, the caselaw has clarified that, in the case of so-called “pricing practices,” where the dominant undertaking submits an AEC test, the Commission is bound to assess it.[71] There is a potential exception to this principle following the ECJ’s ruling in Google Shopping regarding non-pricing practices, but the ruling only narrowly restricts the validity of the AEC test.[72] Indeed, in SEN, the ECJ found that the AEC test can be relevant in assessing non-pricing practices, as well.[73] The Draft Guidelines are thus wrong to conclude that price-cost tests are generally inappropriate for assessing whether non-pricing practices depart from competition on the merits.[74]

The reason the AEC test is so useful within the context of Art.102 TFEU is that it gives meaning to the otherwise nebulous notion of “competition on the merits.” Indeed, the purpose of Art. 102 TFEU is not to punish companies that successfully outcompete rivals, or to ensure that companies endlessly hover on the market when they lack the business acumen to do so naturally.[75] Without a clear yardstick, however, it is not always evident whether the actual or hypothetical departure of a competitor from the market is owed to conduct that is an expression of “competition on the merits” or, conversely, of conduct that is antithetical to it. Especially at the margins, the line between “normal” and “abnormal” competition may be blurred, the logic seeking to demarcate the two may be circular and self-referential.

Against this backdrop, the AEC test is a workable method to simultaneously dispatch the question and arrive at the answer. The question of whether conduct departs from “competition on the merits” is whether an “as efficient competitor” would survive it.[76] The answer is given by the outcome of the AEC test, which seeks to operationalize and structure that inquiry. In short, this is why, even in non-pricing practices, the Commission ignores the AEC test at its own peril.[77]

Second, the Draft Guidelines downplay the need for effects analysis in establishing exclusionary anticompetitive conduct under Art. 102 TFEU more generally. While not completely jettisoned, effects analysis comes out significantly weakened from the Commission’s reading of the caselaw in a way that is likely at odds with the Court’s Art. 102 TFEU jurisprudence. This is manifested in at least three ways: (i) the creation of presumptions (discussed in Section II); (ii) in artificially lowering the burden of proof the Commission must discharge in order to show that conduct that is not presumptively abusive is nevertheless anticompetitive within the meaning of Art. 102 (see also Section IIA); and (iii) in the lowering the burden of proof the Commission has to discharge in order to successfully dismiss evidence and arguments made by the dominant undertaking that the conduct in question does not have anticompetitive effects (or, put differently, in increasing the burden of proof defendants face in escaping Art. 102 TFEU).

Indeed, in recent cases—including Unilever, Qualcomm, Intel, and Google Shopping—the Courts have underscored that the Commission is obliged to assess the effects of a conduct when the dominant undertaking submits arguments and evidence indicating that the behavior in question did not result in an anticompetitive effect. In Unilever, for example, the ECJ found that even presumptively abusive conduct can be justified on efficiency grounds.[78]

In such a case, the Commission must at least demonstrate that the conduct has the potential to produce anticompetitive effects in the market. By contrast, the Draft Guidelines suggest that the Commission is only modestly and, in a sense, superficially bound to consider these arguments and accompanying evidence. The Draft Guidelines states that, where a certain conduct fulfills a formal legal test, it is automatically deemed to fall outside of “competition on the merits.”[79] But the practical effects of this presumption are, as discussed in the previous section, likely to be limited, as the Commission cannot escape an assessment of effects.

The Draft Guidelines establish a particularly low evidentiary threshold for conduct where no specific legal test exists. In those cases, the Draft Guidelines assert that the Commission can rely on purely theoretical evidence to establish that certain conduct amounts to an infringement of Art. 102 TFEU. The Draft Guidelines state that it is sufficient for the Commission to show that “conduct was capable of removing the commercial uncertainty relating to the entry or expansion of competitors that existed at the time of the conduct’s implementation.”[80] Yet the cited case, Lundbeck, offers only limited support.[81] Nowhere in that case is it established that the removal of uncertainty as to the entry or expansion of a competitor constitutes a universal principle for establishing anticompetitive conduct under Art. 102 TFEU.

A third departure from effects-based analysis is marked by the omission of the term “anticompetitive foreclosure” (and its apparent substitution for “competition on the merits”). This was a cornerstone of the now repealed Guidance Paper and, indeed, a crucial criterion in distinguishing exclusion of rivals that results from procompetitive conduct, and that which does not and is, therefore, anticompetitive.[82] Accordingly, the Draft Guidelines can be expected to condemn efficient business conduct, thereby chilling competition to the detriment of consumers.

III. Conclusion: Clarity, Transparency, and Consumer Welfare

The Draft Guidelines constitute a deep shift in the interpretation of Art. 102 TFEU; from an effects-based approach to one based on formalistic presumptions that ignore conduct’s impact on consumer welfare. Unfortunately, in doing so, they fail to achieve what should be their ultimate goal: creating legal certainty by offering stakeholders a clear and accurate overview of the law.

According to the Commission, the Draft Guidelines aim to increase legal certainty and help undertakings self-assess whether their conduct constitutes an exclusionary abuse under Art. 102 TFEU.[83] But even on their own terms, the Draft Guidelines are difficult to understand unless one is exceedingly familiar with the underlying caselaw of Art. 102 TFEU, which undercuts the purpose of publishing such guidelines in the first place. More problematically, the Draft Guidelines often deviate from established precedent. The most egregious examples concern the sections that attempt to systematize the Courts’ Google Shopping rulings. The explanation of the factors to be taken into account when establishing anticompetitive self-preferencing in the wake of Google Shopping adds little clarity to the underlying caselaw and, indeed, could even be argued to detract from it. Thus, the Draft Guidelines do not clearly state which factors matter and how they should be weighed. They only give a numerus apertus list of elements that could be considered when establishing whether self-preferencing departs from competition on the merits.

Another example of this vagueness concerns the alleged “goals” or “values” of Art. 102 TFEU, which do not find support in the caselaw and which reflect policy statements, rather than legal principles that are dispositive in abuse-of-dominance cases. For instance, neither Art. 102 TFEU nor, indeed, EU competition law, aim to achieve the litany of goals that the Draft Guidelines’ opening paragraphs ascribe them.

There is, to our knowledge, no authoritative jurisprudence that would give color to the notion that Art. 102 TFEU’s aim is to create new opportunities for small and medium-sized enterprises (“SMEs”); contribute to sustainable development; or enable a “strong and diversified supply chains.”[84] These considerations follow from policy statements; they are not law. To the extent that they are mentioned in the caselaw, they have, at best, the status of obiter dicta. Mentioning these variegated and abstract values in the Draft Guidelines—even if intended as a good faith gesture of acknowledgment of the policy priorities of the current European administration—is confusing for companies subject to the law, and misunderstands the proper role of soft laws.

Along similar lines, the Draft Guidelines’ reading of consumer welfare — the accepted goal of EU competition law and Art. 102 TFEU — is likewise overly broad and indeterminate. According to the Draft Guidelines, the term “quality” should be understood as covering all the aspects related to the quality of a given product, including, inter alia, “sustainability,” resource efficiency, durability, etc.[85] These potentially infinite dimensions of product quality are, however, never developed later. Nor do the Draft Guidelines explain how they relate to conduct under Art.102 TFEU, or how the Commission intends to rank such factors. Moreover, the Draft Guidelines cite no caselaw of the Courts in support of this assertion.

In short, the Draft Guidelines ultimately obfuscate the law. This, in turn, undermines their usefulness, because they will lead stakeholders to reach incorrect conclusions about the legality or illegality of conduct that falls, or could fall, under Art. 102 TFEU.

The second big problem with the Draft Guidelines is that they attempt to jettison the economic underpinnings of Art. 102 TFEU. This is unfortunate because, as European courts have come to recognize in recent years, the “more economic approach” to competition law improves the analysis and enforcement of competition issues. If anything, this approach should be implemented in a stronger and clearer way, rather than discarded. This approach emphasizes economic efficiencies and consumer welfare, rather than merely the structure of markets or the “legal nature” of business practices.

By prioritizing consumer welfare, the economic approach aims to ensure that competition law fosters an environment that benefits consumers through lower prices, improved quality, and greater innovation. As Nicolas Petit and Lazar Radic explain, the consumer welfare standard allows us to filter cases that could restrict competition to some extent, but could be perfectly the result of “competition on the merits.”[86] The “more economic approach” also allows for a more flexible and nuanced analysis in antitrust cases, enabling regulators to consider the context of business practices and their potential benefits. This can lead to more informed and balanced enforcement actions. In the United States, for instance, the Supreme Court “has repeatedly recognized the limitations that courts face in distinguishing between pro- and anticompetitive conduct in antitrust cases, and particularly the risk this creates of reaching costly false-positive (Type I) decisions in monopolization cases.”[87] Therefore, competition law in the United States has, in general, continued to adhere to the error-cost framework that is embedded in the economic approach to antitrust cases.

Specific cases should be addressed as they come, with an implicit understanding that, especially in digital markets, precious few generalizable presumptions can be inferred from the previous case. The overall stance should be one of restraint, reflecting the state of our knowledge. We may well be able to identify anticompetitive harms in certain cases, and when we do, we should enforce the current laws. But we should not overestimate our ability to finetune market outcomes without causing more harm than benefit.[88]

Moreover, by recognizing that certain practices may lead to efficiencies and innovation, the “more economic approach” can encourage businesses to develop new products, services, and business practices that can, in turn, create more competition and consumer benefits. A more formalistic approach, with a reduced burden of proof, on the other hand, would increase the risk of unwarranted expropriation of rents, thereby discouraging business innovation.[89]

This risk of regulatory error costs is compounded in digital markets, where uncertainty looms large,[90] and where the concomitant deployment of the Digital Markets Act (DMA) completely jettisons any effects analysis.[91] The Draft Guidelines’ significance must be understood against the legal and regulatory background of the DMA. If, as the Draft Guideline stipulate, economic analysis under Art. 102 TFEU is sapped, the only other avenue to assess the economic effects of unilateral conduct—including conduct covered by the DMA, such as self-preferencing, tying, and refusal to deal—will effectively be foreclosed.

This would mark a significant step backward for Art.102 TFEU in general, but is particularly ill-advised in the context of data-driven markets, where rigorous counterfactual analysis is necessary to understand causality and assess likely foreclosure effects.[92] In simple terms, Art. 102 TFEU enforcement may provide a useful tool to analyze the effects of DMA provisions that are inspired by this enforcement.

Ignoring counterfactual analysis in markets where rapid change is the norm, such as the ones covered by the DMA, is likely to lead to a situation in which enforcers are not able to properly understand the competitive dynamics and effects of impugned conduct. In combination with the dubious presumptions discussed in Section I, and the strict provisions of the DMA, this is likely to lead to a proliferation of costly Type I errors.[93]

Given all of this, we believe the Draft Guidelines need to be reworked in order to bring them in line with ECJ caselaw, thereby ensuring that they provide a useful and clear depiction of the law to firms seeking to self-assess the legality of their conduct (or that of their rivals).

[1] Geoffrey A. Manne et al., ICLE Comments on FTC/DOJ Merger Enforcement RFI, International Center for Law & Economics (22 Apr. 2022), at 1, 6-7, https://laweconcenter.org/resources/icle-comments-on-ftc-doj-merger-enforcement-rfi; and at 2: “Conceptually, the role of guidelines is to codify the accepted knowledge in a particular area of antitrust for the sake of legal certainty.”

[2] Guidelines, and soft laws in general, influence courts and national competition authorities (“NCAs”) by promoting a specific approach to legal issues. See, e.g., Nicoletta Maresa Angerer, Soft Norms, Strong Impact: The Significance of Soft Law in the Legal Order of the European Union with Special Consideration of the Work of the Venice Commission (EU Law Working Papers No. 90, Stanford-Vienna Transatlantic Technology Law Forum, 2024), https://law.stanford.edu/publications/no-90-soft-norms-strong-impact-the-significance-of-soft-law-in-the-legal-order-of-the-european-union-with-special-consideration-of-the-work-of-the-venice-commission. See also Gus Hurwitz & Geoffrey Manne, Antitrust Regulation by Intimidation, WALL STREET J. (24 Jul. 2023), https://www.wsj.com/articles/antitrust-regulation-by-intimidation-khan-kanter-case-law-courts-merger-27f610d9.

[3] Linsey McCallum et al., A Dynamic and Workable Effects-Based Approach to Abuse of Dominance, Competition Policy Brief 1 (2023), at 2, available at https://competition-policy.ec.europa.eu/system/files/2023-03/kdak23001enn_competition_policy_brief_1_2023_Article102_0.pdf.

[4] Case C-413/14 P, Intel Corp. v European Comm’n, 2017, EU:C:2017:632 (6 Sep. 2017); Case C-377/20, Servizio Elettrico Nazionale and Others, 2022, EU:C:2022:379 (12 May 2022); Case C-680/20, Unilever, 2023, EU:C:2023:33 (19 Jan. 2023); Case T-286/09 RENV, Intel Corporation v Comm’n, 2022, EU:T:2022:19 (26 Jan. 2022).

[5] Draft Guidelines on the Application of Article 102 of the Treaty on the Functioning of the European Union to Abusive Exclusionary Conduct by Dominant Undertakings, 2024, para. 4 (“Draft Guidelines”).

[6] Geoffrey A. Manne et al., Comments of the International Center for Law and Economics on the FTC & DOJ Draft Merger Guidelines, International Center for Law & Economics (18 Sep. 2023), https://laweconcenter.org/resources/comments-of-the-international-center-for-law-and-economics-on-the-ftc-doj-draft-merger-guidelines.

[7] See, e.g., Gregory J. Werden & Luke Froeb, Don’t Panic: A Guide to Claims of Increasing Concentration 33 Antitrust 74 (2018), https://ssrn.com/abstract=3156912, and papers cited therein. As Werden & Froeb conclude for the United States: “No evidence we have uncovered substantiates a broad upward trend in the market concentration in the United States, but market concentration undoubtedly has increased significantly in some sectors, such as wireless telephony. Such increases in concentration, however, do not warrant alarm or imply a failure of antitrust. Increases in market concentration are not a concern of competition policy when concentration remains low, yet low levels of concentration are being cited by those alarmed about increasing concentration… .” Id. at 78. For an analysis of a European market, see The State of UK Competition, Competition & Markets Authority (Report No. 2, 24 Oct. 2024), available at https://assets.publishing.service.gov.uk/media/67195323549f63039436b3b1/The_State_of_UK_Competition_Report_2024.pdf.

[8] Geoffrey A. Manne & Dirk Auer, Against the ‘Europeanization’ of California’s Antitrust Law, International Center for Law & Economics (7 May 2024), https://laweconcenter.org/resources/against-the-europeanization-of-californias-antitrust-law.

[9] See Mario Draghi, The Future of European Competitiveness (Sep. 2024), https://commission.europa.eu/topics/strengthening-european-competitiveness/eu-competitiveness-looking-ahead_en.

[10] Intel, supra note 4; Unilever, supra note 4; Servizio, supra note 4.

[11] Intel, supra note 4.

[12] Draft Guidelines, supra note 5, at 21-22.

[13] In this regard, see Assimakis Komninos, “J’accuse!’ — Four Deadly Sins of the Commission’s Draft Guidelines on Exclusionary Abuses, Network Law Review (30 Aug. 2024), https://www.networklawreview.org/komninos-guidelines. “The problem with the Draft Guidelines, as I explained above, is that the categories selected are arbitrary and form-based. For example, what makes self-preferencing so different from tying? Tying is a form of self-preferencing. And what makes rebates that are conditional on exclusivity different from retroactive rebates with respect to a fixed threshold when that threshold is equal or close to the total requirements of a customer? These are all very similar practices and cannot be subject to different tests just because of their external characteristics and form being different.”

[14] Case C-62/86, AKZO Chemie BV v Comm’n, 1991, EU:C:1991:286 (3 Jul. 1991), para. 60.

[15] Case C-97/08 Akzo Nobel NV and Others v Commission, 2009, ECLI:EU:C:2009:536 (10 Sep. 2009), paras. 54-61.

[16] Intel Corporation v Comm’n, 2022, EU:T:2022:19 (26 Jan. 2022); Case C-377/20, Case C-48/22 P, Google Shopping, 2024, EU:C:2024:726 (10 Sep. 2024); Servizio Elettrico Nazionale and Others, 2022, EU:C:2022:379 (12 May 2022); Case C-680/20. Unilever, 2023, EU:C:2023:33 (19 Jan. 2023); Case C42/21 P, Lietuvos Gele?inkeliai v. European Commission, EU:C:2023:12 (12 Jan. 2023).

[17] Servizio, supra note 4, para. 51.

[18] Id.

[19] Draft Guidelines, supra note 5, at 22.

[20] See Draft Guidelines, supra note 5, fn. 131. “These Guidelines make use of the expression ‘presumption’ (or ‘presumed’) for allocating the evidentiary burdens that result from the application of the specific legal tests set out by the Union Courts.”

[21] Case C-48/22 P, Google Shopping, 2024, EU:C:2024:726 (10 Sep. 2024), para. 165.

[22] Id., para. 224.

[23] Case C-240/22 P, Intel v. European Commission (Intel II), 2024, ECLI:EU:C:2024:915 (24 Oct. 2024), para. 328.

[24] Case T?604/18, Google and Alphabet v Commission (Google Android), 2022, ECLI:EU:T:2022:541 (14 Sep. 2022), para. 428. “A distinction must be made in this respect between theoretical competition assumptions and the practical reality, where the competitive alternatives to which Google refers appear to have little credibility or real impact due to the ‘status quo bias’ arising from the MADA pre-installation conditions and the combined effects of those conditions with Google’s other contractual arrangements, including RSAs.”

[25] Draft Guidelines, supra note 5, at 22 (3.3.1 c))

[26] Case C-333/21, European Superleague, 2023, EU:C:2023:1011 (21 Dec. 2023) para. 131.

[27] Id., para. 160; see Case C-307/18, Generics (UK) Ltd and Others v Competition & Markets Authority, 2020, EU:C:2020:52 (30 Jan. 2020) paras. 154 –157.

[28] Generics, supra note 27, paras. 154 -155; See also Intel, supra note 4; Case C-52/09, Konkurrensverket v TeliaSonera Sverige AB, 2011, EU:C:2011:83 (17 Feb. 2011) paras. 64, 66, 68.

[29] Draft Guidelines, supra note 5, at 22 (3.3.1 c).

[30] Case C42/21 P, Lietuvos Gele?inkeliai v. European Commission, EU:C:2023:12 (12 Jan. 2023).

[31] Draft Guidelines, supra note 5, footnote 142 and accompanying text.

[32] Intel II, supra note 23, para. 136.

[33] Id, para. 138.

[34] Id, para. 179.

[35] Draft Guidelines, supra note 5, paras. 80 and 82.

[36] Intel Renvoi, supra note 4, paras. 178-179.

[37] Intel Renvoi, supra note 4, paras. 328, 330-331.

[38] Intel Renvoi, supra note 4, paras. 518, 522; See also Intel, supra note 4, para. 138.

[39] Intel Renvoi, supra note 4, para. 522.

[40] Intel, supra note 4, paras. 138-139.

[41] Unilever, supra note 4, paras. 46-48, 52.

[42] See also Intel, supra note 4, para. 136.

[43] The cases cited are Intel, Unilever, and Broadcom.

[44] Unilever, supra note 4, para. 48, citing Intel; see also Case C-209/10, Post Danmark, 2012, EU:C:2012:172, (27 Mar. 2012), para. 21. “Nor does [Article 102 TFEU] seek to ensure that competitors less efficient than the undertaking with the dominant position should remain on the market.” See also para. 22: “Thus, not every exclusionary effect is necessarily detrimental to competition. Competition on the merits may, by definition, lead to the departure from the market or the marginalisation of competitors that are less efficient and so less attractive to consumers from the point of view of, among other things, price, choice, quality or innovation.” (internal references omitted for clarity).

[45] Commission Decision of 16 October 2019, Case AT. 40608 — Broadcom, para. 369, indicating that “Broadcom’s competitors are becoming increasingly unable to exercise a significant competitive constraint on Broadcom. Major and established competitors appear to be losing existing customers or are prevented from finding new ones for reasons that are not dependent on competition on the merits.” But “major and established”—by which the Commission meant mostly Intel—is not necessarily the same as “at least as efficient.”

[46] Case T-235/18, Qualcomm v Commission (Qualcomm), 2022, EU:T:2022:358 (15 Jun. 2022) .

[47] Id, paras. 462 and 463.

[48] OECD, Competition on the Merits, DAF/COMP (2005), at 20, available at https://www.oecd.org/content/dam/oecd/en/publications/reports/2006/03/competition-on-the-merits_27ac3d82/4ab034dd-en.pdf.

[49] Dirk Auer & Lazar Radic, The Growing Legacy of Intel, 14 J. COMP. L. & PRAC. 15 (2023).

[50] Intel, supra note 4, para. 133; Unilever, supra note 4, para. 37; Post Danmark, supra note 44, para. 21.

[51] See, e.g., Intel, supra note 4, para. 139, “The Commission is not only required to analyse…]; Unilever, para. 48; It also seems that, if the Commission decides to undertake such analysis ex officio, it is obliged to do so correctly. Id., paras. 140-142. Though these paragraphs refer to the Commission’s failure to respond to defendants’ arguments calling into question its initial AEC test, this could thus be part of the Commission’s broader duty to address the arguments (or counterarguments) raised by defendants mentioned in paragraph 139 of the same judgment. In practice, however, the Commission will most likely always have to analyze effects, because defendants are likely to always raise such arguments during the administrative procedure.

[52] Intel, supra note 4, para. 139. “[The Commission] is also required to assess the possible existence of a strategy aiming to exclude competitors that are at least as efficient as the dominant undertaking from the market” (emphasis added).

[53] Draft Guidelines, supra note 5, para. 183 (d).

[54] Communication from the Commission, Amendments to the Communication from the Commission – Guidance on the Commission’s Enforcement Priorities in Applying Article 82 of the EC Treaty to Abusive Exclusionary Conduct by Dominant Undertakings (2023/C 116/01) (“Art. 102 Guidance Amendments”), annex, at 4.

[55] Case C-7/97, Bronner, 1998, EU :C:1998:569 (26 Nov. 1998), para. 41.

[56] Google Shopping, supra note 21.

[57] Case T-30/89, Hilti AG v Commission of the European Communities, 1991, ECLI:EU:T:1991:70 (12 Dec. 1991), paras. 115-117.

[58] Id., para 90.

[59] Id., para 8.

[60] Microsoft, para. 1009.

[61] Id., para 85.

[62] DAVID WHISH & RICHARD BAILEY, EU Competition Law 724 – 725 (10th ed. 2022). See also, at 724: “There is now general recognition that per se illegality is inappropriate for tying. Instead, it is necessary to balance the tying’s pro and anti-competitive effects.”

[63] Id., at 725.

[64] For a non-exhaustive list of reasons why firms may legitimately wish to tie their products, see David S. Evans & Michael A. Salinger, Why Do Firms Bundle and Tie? Evidence from Competitive Markets and Implications for Tying Law, 22 Yale J. Reg. 37 (2005).

[65] See, e.g., Draft Guidelines, supra note 5, para. 45.

[66] Unilever, supra note 4, para. 62. “The use of an ‘as efficient competitor test’ is optional.”

[67] Servizio, supra note 4, para. 80.

[68] Id., para. 81.

[69] Intel, supra note 4, paras. 142-147.

[70] Servizio, supra note 4, para. 79.

[71] Intel, supra note 4, para. 139; Unilever, supra note 4, paras. 60 and 62.

[72] Google Shopping, supra note 21, paras. 264, 269.

[73] Servizio, supra note 4, para. 79.

[74] Draft Guidelines, supra note 5, para. 56.

[75] Post Danmark, supra note 44, para. 21.

[76] This also indicates that the ultimate value being protected by Art. 102 TFEU is economic efficiency. The Draft Guidelines recognize this in para. 51. “The concept of competition on the merits covers conduct within the scope of normal competition on the basis of the performance of economic operators and which, in principle, relates to a competitive situation in which consumers benefit from lower prices, better quality and a wider choice of new or improved goods and services.”

[77] Auer & Radic, supra note 49.

[78] Unilever, supra note 4, para. 50.

[79] Draft Guidelines, supra note 5, para. 53.

[80] Draft Guidelines, supra note 5, para. 62.

[81] Case T-472/13, Lundbeck v Commission, 2016, EU:T:2016:449 (8 Sep. 2016), para. 363.

[82] See, in this sense, Komninos, supra note 13. “Paragraphs 19 and 20 [of the Guidance Paper] were the most important paragraphs. If the Guidance Paper had to be limited to one page, these paragraphs by themselves would suffice.” Paragraph 19 states: “The aim of the Commission’s enforcement activity in relation to exclusionary conduct is to ensure that dominant undertakings do not impair effective competition by foreclosing their competitors in an anti-competitive way, thus having an adverse impact on consumer welfare, whether in the form of higher price levels than would have otherwise prevailed or in some other form such as limiting quality or reducing consumer choice.”

[83] Draft Guidelines, supra note 5, para. 8.

[84] Id, para. 1.

[85] Draft Guidelines, supra note 5, para. 2.

[86] See Nicolas Petit & Lazar Radic, The Necessity of a Consumer Welfare Standard in Antitrust Analysis, Promarket (18 Dec. 2023), https://www.promarket.org/2023/12/18/the-necessity-of-a-consumer-welfare-standard-in-antitrust-analysis.

[87] See, Manne & Auer, supra note 8.

[88] Id.

[89] Id.

[90] Geoffrey A. Manne, Error Costs in Digital Markets, 3 GAI REPORT ON THE DIGITAL ECONOMY 34 (2020). (“The inherent uncertainty in judicial decision-making is further exacerbated in the antitrust context where liability turns on the difficult-to-discern economic effects of challenged conduct. And this difficulty is still further magnified when antitrust decisions are made in innovative, fastmoving, poorly-understood, or novel market settings—attributes that aptly describe today’s digital economy);” Nora von Ingersleben-Seip & Zlatina Georgieva, Old Tools for the New Economy? Counterfactual Causation in Foreclosure Assessment and Choice of Remedies in Data-Driven Markets, 00 J. ANTITRUST ENFORCEMENT 1 (2024), (“While interventions under both ex-ante and ex-post (antitrust) mandates are not novel, they must be approached with extra care in data-driven digital markets, where uncertainty and error costs are high.”).

[91] See, e.g., Digital Markets Act, recital 10. “[The DMA] should apply without prejudice to Articles 101 and 102 TFEU, to the corresponding national competition rules and to other national competition rules regarding unilateral conduct that are based on an individualised assessment of market positions and behaviour, including its actual or potential effects and the precise scope of the prohibited behaviour, and which provide for the possibility of undertakings to make efficiency and objective justification arguments for the behaviour in question, and to national rules concerning merger control;” see also recital 11: “This Regulation pursues an objective that is complementary to, but different from that of protecting undistorted competition on any given market, as defined in competition-law terms, which is to ensure that markets where gatekeepers are present are and remain contestable and fair, independently from the actual, potential or presumed effects of the conduct of a given gatekeeper covered by this Regulation on competition on a given market” (emphasis added).

[92] Von Ingersleben-Seip & Georgieva, supra note 90, at 16-17.

[93] Von Ingersleben-Seip & Georgieva, supra note 90, at 24. (“We argued that authorities need to proceed carefully with regard to two aspects of ex-post interventions in dynamic digital markets already governed by ex-ante obligations. First, authorities need to ensure that there is a high threshold for such interventions, requiring rigorous analysis to determine whether companies have abused their dominant position.”)

SHORT FORM WRITTEN OUTPUT

What the IMF Gets Wrong About Costa Rica’s Payment-Card Caps

Julian Morris • October 30, 2024

The Asamblea Legislativa de la República de Costa Rica (Costa Rica’s legislature) moved in 2020 to empower the Banco Central de Costa Rica (BCCR), the . . .

The Asamblea Legislativa de la República de Costa Rica (Costa Rica’s legislature) moved in 2020 to empower the Banco Central de Costa Rica (BCCR), the nation’s central bank, to impose price controls on fees charged by both payment-card issuers and acquirers.

I have written previously about the perverse effects these price controls can generate (here, here, and here), and was thus intrigued to see that the International Monetary Fund (IMF) included a related assessment of payment-card fees as part of a background paper on the Costa Rican economy.

In this post, I review the implementation of price controls on the merchant-discount rate (MDR) and interchange fees in Costa Rica, as well as their likely effects. I then review the IMF’s analysis and offer some constructive criticism.

Financial Regulation & Corporate Governance

Data Caps and Usage-Based Pricing

Eric Fruits & Kristian Stout • October 28, 2024

TL;DR Background: Internet use has soared in the years since the COVID-19 pandemic. Average monthly data usage grew 70% from 344 GB in 2019 to . . .

TL;DR

Background: Internet use has soared in the years since the COVID-19 pandemic. Average monthly data usage grew 70% from 344 GB in 2019 to 586 GB in 2022. While only 16% of subscribers were on 200+ Mbps speed tiers in 2019, by 2023, 74% had such speeds, and a third of subscribers had speeds of 1,000 Mbps or more.

Most internet service providers (ISPs) now offer hybrid service plans, with a flat rate for an initial data allowance (or a data cap) and additional charges for additional data. This combination of data allowances and usage-based pricing creates a more direct relationship between a customer’s internet use and the price they pay for service.

But… These practices have come under scrutiny, with some advocating that the Federal Communications Commission (FCC) ban data caps and regulate usage-based pricing under Title II of the Communications Act. The FCC took a step in that direction with a recent inquiry seeking input on whether data caps harm competition or consumers’ ability to access broadband internet.

However… By enabling ISPs to recover more of their investment costs from heavy users, while potentially offering lower-priced plans to lighter users, usage-based pricing can drive increased broadband deployment and adoption, in addition to fostering a more robust, innovative internet ecosystem. Regulations that ban or severely restrict usage-based pricing could have the undesired consequence of stifling innovation, investment, and deployment.

KEY TAKEAWAYS

FOSTERING FAIRNESS AND ECONOMIC EFFICIENCY

Under flat-rate pricing, all consumers pay the same amount regardless how much data they use. This can potentially lead to overuse by heavy users and cross-subsidization by light users.

By contrast, usage-based pricing can improve broadband affordability and, in turn, increase adoption. Usage-based pricing allows consumers who use less data to pay less, while consumers who use more pay more. Aligning the costs of consumption with the prices that consumers pay encourages the responsible use of network resources.

IMPROVED AFFORDABILITY AND EXPANDED ADOPTION

Users with a low data demand may find broadband unaffordable under a flat-rate pricing plan and remain unconnected. Usage-based pricing allows for more granular pricing that better reflects individual consumption patterns. This approach can lead to lower prices for entry-level plans, which expands broadband adoption and, in turn, boosts provider revenues. Moreover, such pricing provides better cost recovery for serving heavy users.

While heavy users may be worse off under usage-based pricing, consumers overall are better off. Prices are more closely aligned to willingness-to-pay, the ISPs better cover their costs, and more consumers are connected to the internet.

USAGE-BASED PRICING CAN EXPAND BROADBAND DEPLOYMENT

Usage-based pricing strategies could render certain broadband-deployment projects economically viable that would otherwise be unprofitable, particularly those in underserved areas. Such pricing enables ISPs to recover more of their investment costs from heavy users while offering lower-priced plans to light users.

Like all firms, broadband providers have limited resources to invest. While profitability is necessary for investment, not all profitable investments can be undertaken. Among the universe of potentially profitable projects, firms are likely to give priority to those that promise the greatest returns. In other words, providers are more likely to prioritize investments that generate higher revenues at lower costs.

In some cases, usage-based pricing is one way to boost provider revenues. Where this is possible, the additional revenues provide additional resources for investment and improve the expected ROI on deployment. Shifting from fixed-rate to usage-based pricing can shift some deployment opportunities from unprofitable to profitable.

In this way, usage-based pricing not only eases congestion in the short run—by suppressing data demand—but also reduces congestion in the long run by funding increased investments in speed and capacity.

REGULATIONS MUST BALANCE CONSUMER INTERESTS WITH INCENTIVES TO INVEST AND INNOVATE

Rather than ban or severely restrict data caps and usage-based pricing, the FCC should prioritize a flexible regulatory approach that encourages innovation and investment while safeguarding consumer interests.

This approach should emphasize transparency, such as existing regulations that require ISPs to make clear and transparent consumer disclosures of their data-cap and usage-based-pricing policies.

It would also rely on antitrust law, FCC oversight, and the Federal Trade Commission’s (FTC) existing authority to address any anticompetitive or deceptive practices on a case-by-case basis.

For more on this issue, see the ICLE white paper “The Economics of Broadband Data Caps and Usage-Based Pricing” by Eric Fruits, Kristian Stout, and Geoffrey A. Manne.

The View from India: A TOTM Q&A with Shivanghi Sukumar

Shivanghi Sukumar • October 28, 2024

Our latest guest in Truth on the Market’s “Global Voices Forum” series is Shivanghi Sukumar, a partner with Axion5 Law Chambers in New Delhi, India. We . . .

Our latest guest in Truth on the Market’s “Global Voices Forum” series is Shivanghi Sukumar, a partner with Axion5 Law Chambers in New Delhi, India. We discuss recent interventions by the Competition Commission of India, India’s draft Digital Competition Bill

Excise-Tax Reform as a Harm-Reduction Approach to Sports Gambling

Kristian Stout • October 23, 2024

TL;DR Background: The U.S. federal government applies a 0.25% excise tax on total amounts wagered on legalized sports gambling (LSG), as well as a 2% . . .

TL;DR

Background: The U.S. federal government applies a 0.25% excise tax on total amounts wagered on legalized sports gambling (LSG), as well as a 2% excise tax on illegal sports gambling—although the latter is rarely collected. When combined with state-level taxes and an annual $50 per-employee occupational tax, however, the taxes that legal operators face are significantly more onerous. In practice, these additional operational costs present obstacles to the effective operation of legal gambling markets. These tax burdens also limit legal operators’ ability to invest in responsible gaming programs and safer user experiences.

But… While the federal excise tax aims to generate revenue and discourage excessive gambling, its unintended consequences include making illegal offshore gambling relatively more attractive to consumers. Legal operators report that they struggle to match the pricing and incentives offered by illegal operators, who systematically avoid taxes and regulations. Offshore platforms also lack many responsible gaming measures, exposing consumers to risks without legal recourse.

However… By embracing a harm-reduction approach, governments could encourage consumers to engage with regulated platforms by making legal gambling more competitive.

KEY TAKEAWAYS

LOWERING OR REMOVING THE EXCISE TAX

Reducing or eliminating the federal excise tax on legalized sports gambling would directly alleviate the financial burden on legal operators, enabling them to lower their operational costs. The 0.25% tax on all wagers, coupled with the $50 annual head tax per-employee, inflates the expenses that legitimate businesses must bear.

The excise tax is applied to the total amount wagered, known as the handle, regardless whether the bettor wins or loses. The difference between the sums that a sportsbook pays out to winners and the amount it keeps from losers is known as the hold, and is typically about 5% of the handle. Thus, while a tax of 0.25% of the handle seems small, as a share of the revenues the sports book receives, the tax can be 5% or more.

Research indicates that U.S. gaming consumers are very price sensitive. In a competitive market, a 5% tax can significantly restrict operators from offering competitive odds, promotions, and bonuses, making it harder to attract consumers. Further, most offshore platforms evade these taxes entirely, which allows them to offer superior payouts, better odds, and more generous promotions. This can be thought of as a form of import dumping, in which tax-evading offshore firms can underprice U.S. firms.

Lowering or eliminating the LSG excise tax would restore parity by allowing legal platforms to price their services competitively and attract more consumers to regulated markets.

A BETTER USER EXPERIENCE

Reducing the federal excise tax would also allow legal gambling platforms to reinvest their savings into innovative customer-engagement strategies, such as improved odds and more attractive sign-up bonuses. Additionally, operators could create more appealing loyalty programs, providing incentives for bettors to stay within legal platforms. By offering experiences comparable to or better than offshore alternatives, legal platforms would increase their market share while ensuring that consumers gamble within environments that are subject to responsible gaming regulations

ENCOURAGING RESPONSIBLE GAMING

Offshore platforms often operate outside U.S. regulators’ reach, allowing them to evade consumer-protection standards, responsible gaming measures, and financial transparency. This lack of oversight exposes consumers to such risks as fraud, addiction, and the loss of recourse in disputes.

Lowering or eliminating the LSG excise tax would empower legal operators to devote greater focus to harm-reduction efforts, such as investing in technology to monitor gambling behavior and intervene when problematic patterns arise. These investments could include better customer-support services, self-exclusion programs, and partnerships with mental-health organizations to offer accessible counseling and addiction-prevention resources.

Additionally, operators could develop more transparent communication with users, promoting healthy gambling habits and educating them on the risks involved. This shift would reduce the social costs of problem gambling, which is ostensibly a primary justification for the excise tax.

MAINTAINING THE INTEGRITY OF SPORTS

Legal operators play a crucial role in maintaining sports integrity by sharing real-time betting data with specialized monitoring services that detect potential match-fixing attempts. These aggregators analyze betting patterns across multiple platforms to identify suspicious activity.

Offshore operators typically avoid participating in these monitoring systems, creating blind spots that make it harder to detect and prevent match-fixing schemes, ultimately threatening the integrity of sports competitions. Further, unregulated offshore entities can be vectors for cybersecurity breaches and fraud.

Once a tool to curb excessive gambling, the LSG excise tax now undermines the competitiveness of legal markets and compromises consumer safety. Reforming or eliminating the tax would align with a harm-reduction strategy, promoting safer gambling environments while maintaining market health.

Innovation & the New Economy

The FCC’s Quixotic Quest to Regulate Broadband Data Caps

Eric Fruits • October 23, 2024

Internet use has soared since the COVID-19 pandemic. Between 2019 and 2022, average monthly data usage increased from 344 GB to 586 GB per month—a . . .

Internet use has soared since the COVID-19 pandemic. Between 2019 and 2022, average monthly data usage increased from 344 GB to 586 GB per month—a 70% increase. In 2019, only 16% of subscribers were on speed tiers of greater than 200 Mbps. By 2023, 74% had such speeds, and a third of subscribers had speeds of 1,000 Mbps or more.

But despite consumers getting much more and much faster internet, the Federal Communications Commission (FCC) seems to think it can regulate the industry into providing even more data at a lower price.

Parcerias e Concorrência em IA: Muito Barulho por Nada?

Dirk Auer & Mario A. Zúñiga • October 18, 2024

Autoridades de políticas de concorrência em todo o mundo têm expressado preocupações sobre a competição em setores emergentes de inteligência artificial, com alguns tomando medidas para . . .

Autoridades de políticas de concorrência em todo o mundo têm expressado preocupações sobre a competição em setores emergentes de inteligência artificial, com alguns tomando medidas para investigá-los mais profundamente.

Esses medos são alimentados principalmente pela sensação de que plataformas digitais tradicionais (embora em mercados adjacentes) podem usar parcerias estratégicas com empresas de IA para diminuir a competição neste setor de rápido crescimento.

Antitrust at the Agencies: PBM Madness at the FTC, Part 2

Daniel J. Gilman • October 15, 2024

As I noted in my last post, the Federal Trade Commission (FTC) announced Sept. 20 that it had filed a complaint: against the three largest prescription drug benefit . . .

As I noted in my last post, the Federal Trade Commission (FTC) announced Sept. 20 that it had filed a complaint:

against the three largest prescription drug benefit managers (PBMs)—Caremark Rx, Express Scripts (ESI), and OptumRx—and their affiliated group purchasing organizations (GPOs) for engaging in anticompetitive and unfair rebating practices that have artificially inflated the list price of insulin drugs, impaired patients’ access to lower list price products, and shifted the cost of high insulin list prices to vulnerable patients.

They later posted a redacted version of the complaint, which is one part competition and two parts consumer protection. The complaint alleges that the defendants violated Section 5 of the FTC Act in three ways.

Preemptive Digital-Platform Rules Are Not Good Competition Policy, But They Were Never Meant to Be

Lazar Radic • October 14, 2024

Inspired by the European Union’s Digital Markets Act (DMA), a growing number of jurisdictions around the globe either have adopted or are considering adopting frameworks . . .

Inspired by the European Union’s Digital Markets Act (DMA), a growing number of jurisdictions around the globe either have adopted or are considering adopting frameworks of preemptive digital-competition rules (DCRs) that would more closely regulate the business models of such platforms as Google’s search engine and Amazon’s e-commerce business. The Turkish government may soon join them, as the draft amendment to Law No. 4054 on the Protection of Competition nears completion.

And the 2024 Economics Nobel Goes to…

Brian Albrecht • October 14, 2024

The 2024 Nobel Memorial Prize in Economic Sciences (or simply THE Nobel Prize, as I call it) was awarded this morning to Daron Acemoglu, Simon . . .

The 2024 Nobel Memorial Prize in Economic Sciences (or simply THE Nobel Prize, as I call it) was awarded this morning to Daron Acemoglu, Simon Johnson, and James Robinson “for studies of how institutions are formed and affect prosperity.” I called last year’s prize to Claudia Goldin “a surprise to no one.” This year’s prize is even less of a surprise. Acemoglu is the second-most-cited living economist.

At the heart of Acemoglu, Johnson, and Robinson’s (AJR) work is a simple question: How do political institutions fundamentally shape the wealth of nations? This immediately raises a crucial follow-up question—what shapes these institutions? AJR won the prize for the back-and-forth between those questions. Really, not for the questions asked or for the answers given, but for the empirical and theoretical tools used to answer those questions.

Fair Trade Act Amendments Would Create Flaws

Lazar Radic • October 13, 2024

South Korea recently abandoned plans for the Platform Competition Promotion Act (PCPA), legislation inspired by the European Union’s landmark Digital Markets Act (DMA), which aimed . . .

South Korea recently abandoned plans for the Platform Competition Promotion Act (PCPA), legislation inspired by the European Union’s landmark Digital Markets Act (DMA), which aimed to establish strict competition rules for digital platforms such as Google, Apple, Amazon, and Meta. Instead, the Korea Fair Trade Commission (KFTC) and President Yoon Suk Yeol’s government have expressed support for amendments to the existing Fair Trade Act.

Antitrust at the Agencies: PBM Madness at the FTC, Part 1

Daniel J. Gilman • October 11, 2024

The Federal Trade Commission (FTC) announced Sept. 20 that it had filed a complaint: against the three largest prescription drug benefit managers (PBMs)—Caremark Rx, Express Scripts (ESI), and . . .

The Federal Trade Commission (FTC) announced Sept. 20 that it had filed a complaint:

against the three largest prescription drug benefit managers (PBMs)—Caremark Rx, Express Scripts (ESI), and OptumRx—and their affiliated group purchasing organizations (GPOs) for engaging in anticompetitive and unfair rebating practices that have artificially inflated the list price of insulin drugs, impaired patients’ access to lower list price products, and shifted the cost of high insulin list prices to vulnerable patients.

The commission later posted a redacted version of the complaint—which is partly a competition complaint but not, apparently, an antitrust complaint. It’s a pure Section 5 (of the FTC Act) complaint that’s one part competition and two-parts consumer protection. Concerns about competition in the health-care sector are legitimate–important, even. If we focus on price, safety, and effectiveness of and access to prescription drugs, one might have any number of policy concerns—including, but hardly limited to, antitrust concerns—about entities or conduct anywhere along the chain of development, marketing, and distribution. But the FTC complaint is a puzzle.

Don Rosenberg: Navigating Antitrust in Tech – Insights from a Legal Veteran

Don Rosenberg • October 8, 2024

In this edition of Truth on the Market’s Business as Usual series, we discuss antitrust in the tech industry with Don Rosenberg. With a career spanning more than . . .

In this edition of Truth on the Market’s Business as Usual series, we discuss antitrust in the tech industry with Don Rosenberg. With a career spanning more than four decades at the forefront of legal strategy for IBM, Apple, and Qualcomm, Rosenberg has navigated some of the most consequential antitrust challenges of recent decades. From the landmark IBM case of the 1970s to Qualcomm’s recent global regulatory battles, he has been at the forefront of the evolving relationship between innovation and regulation. Rosenberg’s experience grants him a unique perspective on how to balance technological progress with concerns about fair competition. In this interview, Rosenberg shares his thoughts on how these factors have shaped the tech industry and U.S. economic competitiveness on the global stage.

Prudence and Precedent Counsel Modest Remedies in Google Search Case

Asheesh Agarwal • October 7, 2024

Later this fall, the U.S. District Court for the District of Columbia will hold hearings to determine the proper remedy in the Google search case. Among . . .

Later this fall, the U.S. District Court for the District of Columbia will hold hearings to determine the proper remedy in the Google search case. Among other options, the court could restrict Google’s ability to sign exclusive distribution contracts, force it to share data with competitors, or even break Google apart into two or more companies. Precedent and policy, however, favor a more modest course that would allow Google to continue to operate as an integrated company, albeit with some limits on its ability to sign exclusive deals. Such a remedy would comport with past cases, minimize any harm to innovation, and allow the market, rather than the government, to shape the future.

Age-Verification Mandates: Constitutional Concerns and Policy Pitfalls

Kristian Stout • October 1, 2024

In a recent post, my International Center for Law & Economics (ICLE) colleague Ben Sperry explored the First Amendment implications of Rep. John James’ (R-Mich.) proposal to mandate . . .

In a recent post, my International Center for Law & Economics (ICLE) colleague Ben Sperry explored the First Amendment implications of Rep. John James’ (R-Mich.) proposal to mandate app stores either verify users’ ages and or obtain parental consent for users who are minors. While that analysis provided a solid foundation for understanding the constitutional issues at-play, it’s crucial to delve deeper into why such laws are almost certainly not the least-restrictive means to protect children online. Further, these constitutional infirmities demonstrate why this is likely to be a counterproductive public policy, even if it could survive judicial scrutiny.

Age-verification and parental-consent mandates not only raise significant First Amendment concerns, but also present a host of practical challenges that could undermine their effectiveness and potentially create new risks for users of all ages.

Innovation & the New Economy

COMMENTS & STATEMENTS

ICLE Comments on Art. 102 TFEU Draft Guidelines

Geoffrey A. Manne, Dirk Auer, Lazar Radic, & Mario A. Zúñiga • October 31, 2024

Introduction We appreciate the opportunity to respond to this consultation regarding the Commission’s “Draft Guidelines on the application of Article 102 of the Treaty on . . .

Introduction

contributed to moving away from a formalistic approach to enforcing Article 102 TFEU, where cases were prioritized based on per se criteria, to an effects-based approach where priorities are set taking into account the potential effects of the given conduct, through the analysis of market dynamics, in line with mainstream economic thinking.[3]

The Commission’s Draft Guidelines are motived by the belief that more “vigorous” enforcement of Art. 102 TFEU is needed:

in view of growing market concentration in various industries and the digitisation of the Union economy, which makes strong network effects and “winner-takes-all” dynamics increasingly widespread, it is important that Article 102 TFEU is applied vigorously and effectively.[5]

I. Presumptions of Illegality: A Consolidation of the Caselaw that Also Pushes Its Boundaries

A. The Guidelines’ Three-Tiered System Is Not Supported by Caselaw

Where a dominant undertaking submits, during the administrative procedure and with supporting evidence, that its conduct was not capable of restricting competition, the competition authority concerned is required to examine whether, in the particular circumstances, the conduct in question was indeed capable of doing so (see, to that effect, judgment of 6 September 2017, Intel v Commission, C?413/14 P, EU:C:2017:632, paragraphs 138 and 140).[17]

In order to find, in a given case, that conduct must be categorised as ‘abuse of a dominant position’ within the meaning of Article 102 TFEU, it is necessary, as a rule, to demonstrate, through the use of methods other than those which are part of competition on the merits between undertakings, that that conduct has the actual or potential effect of restricting that competition by excluding equally efficient competing undertakings from the market or markets concerned, or by hindering their growth on those markets…[21]

Conduct may be categorised as ‘abuse of a dominant position’ not only where it has the actual or potential effect of restricting competition on the merits by excluding equally efficient competing undertakings from the market(s) concerned, but also where it has been proven to have the actual or potential effect – or even the object – of impeding potentially competing undertakings at an earlier stage, through the placing of obstacles to entry or the use of other blocking measures or other means different from those which govern competition on the merits, from even entering that or those market(s) and, in so doing, preventing the growth of competition therein to the detriment of consumers, by limiting production, product or alternative service development or innovation (see, to that effect, judgment of 30 January 2020, Generics (UK) and Others, C?307/18, EU:C:2020:52, paragraphs 154 to 157).[26]

154 … [I]f such conduct is to be characterised as abusive, that presupposes that that conduct was capable of restricting competition and, in particular, producing the alleged exclusionary effects… and that assessment must be undertaken having regard to all the relevant facts surrounding that conduct.

155 In this case… the set of settlement agreements concluded on the initiative of GSK were part of an overall strategy on the part of that manufacturer of originator medicines and had, if not as their object, at least the effect of delaying the market entry of generic medicines… and, therefore, of preventing a significant fall in the prices of the originator medicines… the direct consequence of that entry would have been an appreciable reduction in GSK’s market share and an equally appreciable reduction in the sale price of its originator medicine.

136 In so far as the Commission relies on Intel’s dominant position, on the conditional nature of the rebates and on the existence of a strategy aiming to exclude a competitor of Intel from the market, irrespective of whether that competitor is as efficient as Intel, the arguments thus relied on in support of that complaint are based, implicitly but necessarily, on the idea that the contested rebates are abusive per se.

…

138 … Irrespective of the fact that, in themselves, the criteria relied on by the Commission do not appear to be sufficient to find an infringement of Article 102 TFEU, the General Court could not carry out such an examination, since, as it recalled, in essence, in paragraph 150 of the judgment under appeal, it cannot alter the constituent elements of the infringement found by the Commission by substituting its own reasoning for that of the author of the act the legality of which it is reviewing under Article 263 TFEU (see, to that effect, judgment of 16 June 2022, Sony Corporation and Sony Electronicsv Commission, C?697/19 P, EU:C:2022:478, paragraph 95 and the case-law cited). [33]

More importantly, Intel II also confirmed that the Commission has to demonstrate “in all cases” that the alleged anticompetitive conduct has the effect of restricting competition:

… the demonstration that conduct has the actual or potential effect of restricting competition, which may entail the use of different analytical templates depending on the type of conduct at issue in a given case, must be made, in all cases, in the light of all the relevant factual circumstances, irrespective of whether they concern the conduct itself, the market or markets in question or the functioning of competition on that market or those markets. That demonstration must, moreover, be aimed at establishing, on the basis of specific, tangible points of analysis and evidence, that that conduct, at the very least, is capable of producing exclusionary effects (judgment of 21 December 2023, European Superleague Company, C333/21, EU:C:2023:1011, paragraphs 129 and 130 and the case-law cited). (Emphasis added).[34]

B. Specific Examples of Flawed Presumptions Under the Draft Guidelines

Such exclusionary strategy is not legally required to establish the conduct’s capability to produce exclusionary effects, but may play an important role in the assessment in those cases where it is established.[53]

That tying is “a normal feature of commercial life, and not something that should be viewed as inherently suspicious” has also long been recognized in the literature.[62] In fact:

Manufacturing activity, by its very nature, involves the bringing together of different components, and it would be perverse to suggest that, when engaged in by a dominant firm, such behavior should be stigmatized as presumptively unlawful: the presumption should be the other way.[63] (emphasis added)

Alas, the Draft Guidelines include no such provisions on presumptively lawful tying.[64]

II. A Weakening of Effects Analysis?

III. Conclusion: Clarity, Transparency, and Consumer Welfare

[9] See Mario Draghi, The Future of European Competitiveness (Sep. 2024), https://commission.europa.eu/topics/strengthening-european-competitiveness/eu-competitiveness-looking-ahead_en.

[10] Intel, supra note 4; Unilever, supra note 4; Servizio, supra note 4.

[11] Intel, supra note 4.

[12] Draft Guidelines, supra note 5, at 21-22.

[14] Case C-62/86, AKZO Chemie BV v Comm’n, 1991, EU:C:1991:286 (3 Jul. 1991), para. 60.

[15] Case C-97/08 Akzo Nobel NV and Others v Commission, 2009, ECLI:EU:C:2009:536 (10 Sep. 2009), paras. 54-61.

[17] Servizio, supra note 4, para. 51.

[18] Id.

[19] Draft Guidelines, supra note 5, at 22.

[21] Case C-48/22 P, Google Shopping, 2024, EU:C:2024:726 (10 Sep. 2024), para. 165.

[22] Id., para. 224.

[23] Case C-240/22 P, Intel v. European Commission (Intel II), 2024, ECLI:EU:C:2024:915 (24 Oct. 2024), para. 328.

[25] Draft Guidelines, supra note 5, at 22 (3.3.1 c))

[26] Case C-333/21, European Superleague, 2023, EU:C:2023:1011 (21 Dec. 2023) para. 131.

[27] Id., para. 160; see Case C-307/18, Generics (UK) Ltd and Others v Competition & Markets Authority, 2020, EU:C:2020:52 (30 Jan. 2020) paras. 154 –157.

[28] Generics, supra note 27, paras. 154 -155; See also Intel, supra note 4; Case C-52/09, Konkurrensverket v TeliaSonera Sverige AB, 2011, EU:C:2011:83 (17 Feb. 2011) paras. 64, 66, 68.

[29] Draft Guidelines, supra note 5, at 22 (3.3.1 c).

[30] Case C42/21 P, Lietuvos Gele?inkeliai v. European Commission, EU:C:2023:12 (12 Jan. 2023).

[31] Draft Guidelines, supra note 5, footnote 142 and accompanying text.

[32] Intel II, supra note 23, para. 136.

[33] Id, para. 138.

[34] Id, para. 179.

[35] Draft Guidelines, supra note 5, paras. 80 and 82.

[36] Intel Renvoi, supra note 4, paras. 178-179.

[37] Intel Renvoi, supra note 4, paras. 328, 330-331.

[38] Intel Renvoi, supra note 4, paras. 518, 522; See also Intel, supra note 4, para. 138.

[39] Intel Renvoi, supra note 4, para. 522.

[40] Intel, supra note 4, paras. 138-139.

[41] Unilever, supra note 4, paras. 46-48, 52.

[42] See also Intel, supra note 4, para. 136.

[43] The cases cited are Intel, Unilever, and Broadcom.

[46] Case T-235/18, Qualcomm v Commission (Qualcomm), 2022, EU:T:2022:358 (15 Jun. 2022) .

[47] Id, paras. 462 and 463.

[49] Dirk Auer & Lazar Radic, The Growing Legacy of Intel, 14 J. COMP. L. & PRAC. 15 (2023).

[50] Intel, supra note 4, para. 133; Unilever, supra note 4, para. 37; Post Danmark, supra note 44, para. 21.

[53] Draft Guidelines, supra note 5, para. 183 (d).

[55] Case C-7/97, Bronner, 1998, EU :C:1998:569 (26 Nov. 1998), para. 41.

[56] Google Shopping, supra note 21.

[57] Case T-30/89, Hilti AG v Commission of the European Communities, 1991, ECLI:EU:T:1991:70 (12 Dec. 1991), paras. 115-117.

[58] Id., para 90.

[59] Id., para 8.

[60] Microsoft, para. 1009.

[61] Id., para 85.

[63] Id., at 725.

[65] See, e.g., Draft Guidelines, supra note 5, para. 45.

[66] Unilever, supra note 4, para. 62. “The use of an ‘as efficient competitor test’ is optional.”

[67] Servizio, supra note 4, para. 80.

[68] Id., para. 81.

[69] Intel, supra note 4, paras. 142-147.

[70] Servizio, supra note 4, para. 79.

[71] Intel, supra note 4, para. 139; Unilever, supra note 4, paras. 60 and 62.

[72] Google Shopping, supra note 21, paras. 264, 269.

[73] Servizio, supra note 4, para. 79.

[74] Draft Guidelines, supra note 5, para. 56.

[75] Post Danmark, supra note 44, para. 21.

[77] Auer & Radic, supra note 49.

[78] Unilever, supra note 4, para. 50.

[79] Draft Guidelines, supra note 5, para. 53.

[80] Draft Guidelines, supra note 5, para. 62.

[81] Case T-472/13, Lundbeck v Commission, 2016, EU:T:2016:449 (8 Sep. 2016), para. 363.

[83] Draft Guidelines, supra note 5, para. 8.

[84] Id, para. 1.

[85] Draft Guidelines, supra note 5, para. 2.

[87] See, Manne & Auer, supra note 8.

[88] Id.

[89] Id.

[92] Von Ingersleben-Seip & Georgieva, supra note 90, at 16-17.

AMICUS BRIEFS

ICLE Brief to the 9th Circuit in Epic Games v Google

Daniel J. Gilman & Geoffrey A. Manne • October 23, 2024

STATEMENT OF INTEREST The International Center for Law & Economics (“ICLE”) is a nonprofit, non-partisan global research and policy center aimed at building the intellectual . . .

STATEMENT OF INTEREST

INTRODUCTION AND SUMMARY OF ARGUMENT

ARGUMENT

I. GOOGLE IS LIKELY TO WIN ITS APPEAL ON THE MERITS.

A. Google Play And Apple’s App Store Compete In the Same Product Market.

B. Google’s Conduct Has Significant Pro-Competitive Justifications.

II. ANTITRUST GENERALLY REPUDIATES A DUTY TO DEAL, IN CONTRAST WITH THE DECISION AND INJUNCTION BELOW

CONCLUSION

For the foregoing reasons, we urge the Court to stay the district court’s injunction pending Google’s appeal on the merits.

LONG FORM WRITING

Vertical Restraints in an Amazon World

Martin Edwards • October 27, 2024

Vertical restraints are a peculiarity, even among the dizzying array of contracts subject to antitrust scrutiny. While current law treats vertical restraints permissively, antitrust . . .

Abstract

Vertical restraints are a peculiarity, even among the dizzying array of contracts subject to antitrust scrutiny. While current law treats vertical restraints permissively, antitrust reformers have added this permissive treatment of vertical restraints to their list of proposed reforms. The reformers have softly proposed that courts apply a presumption of illegality standard for vertical restraints— greater scrutiny than the current standard, the rule of reason. This Article argues that doing so is inadvisable.

Producers and their consumers both want the same thing: the best overall product experience for the money. The critical economic functions of vertical restraints are to enable the manufacturer or brand to bind dealers and retailers to deliver its products to consumers in a manner that maximizes the product’s value to those consumers. Manufacturers try to accomplish this with these unique contractual tools, including price-based vertical restraints such as resale price maintenance and non-price restraints such as restrictions on selling through online platforms such as Amazon. To render these tried-and-true contract provisions illegal would upset a balance that benefits manufacturers and consumers, with no substantial corresponding benefit to anyone else.

Moreover, vertical restraints are powerful tools that manufacturers can use to counter Amazon, which reformers allege uses pressure tactics against manufacturers who do not want their products sold on Amazon’s platform. This reveals a difficult contradiction: on the one hand, reformers want to make vertical restraints illegal, but, on the other, they recognize that these very contract terms are among the most powerful tools manufacturers and dealers may have to limit Amazon’s—and perhaps other large retailers’—power in retailing and distribution. Thus, this Article argues that, as antitrust law has done for some time, it should continue to balance these competing forces through the rule of reason, rather than rushing to illegalize vertical restraints. Indeed, the reformers’ desire to upset the balance struck for vertical restraints calls into question their broader approach to increase antitrust enforcement in other contexts.

The Economics of Broadband Data Caps and Usage-Based Pricing

Eric Fruits, Kristian Stout, & Geoffrey A. Manne • October 23, 2024

I. Introduction The rapid growth of internet traffic and growing demand for high-speed broadband services have been met with broadband offerings that incorporate data caps . . .

I. Introduction

II. Background and Recent History

SOURCE: OpenVault

Not only are more people using the internet, but they are also using more data at higher speeds and lower prices.

According to OpenVault, between 2019 and 2022, average monthly data usage increased by 70%, from 344 GB to 586 GB.[7]
In 2019, only 16% of subscribers were on a speed tier with download speeds of 200 Mbps or more. As of 2023, 74% had such speeds, and a third of subscribers had speeds of 1,000 Mbps or more (Table 1).[8]
The median U.S. fixed-broadband connection now delivers more than 240 Mbps download service, a 110% increase over the pre-pandemic median speed (Figure 1).[9]
A broadband pricing index published annually by USTelecom reports that inflation-adjusted broadband prices for the most popular speed tiers fell 54.7% from 2015 to 2023, or an average of 5.6% a year.[10] Prices for the highest-speed tiers have fallen 55.8% over the same period.
The Producer Price Index (PPI) for residential internet-access services fell by 12.3% from 2015 through 2023.[11] In contrast, the PPI for “services less trade, transportation, and warehousing” increased by 23.5% over the same period.[12]
OpenVault reports that 22.2% of subscribers used 1 TB or more of data per month in 2023 (Table 1). By contrast, in 2019, only 4.2% of subscribers used 1 TB or more.[13] At one time, these subscribers were called “power users” because they represented a small share of the market. Now, such “power usage” is commonplace.

FIGURE 1: Median Download Speed in the United States (Mbps)

SOURCE: SpeedTest

III. What Are Data Caps and Usage-Based Pricing?

The FCC has taken a keen interest in usage-based pricing and data caps, but has never previously offered any firm conclusions regarding the practices or how such practices should be regulated:

In its 2010 Order, the FCC concluded that “prohibiting tiered or usage-based pricing and requiring all subscribers to pay the same amount for broadband service, regardless of the performance or usage of the service, would force lighter end users of the network to subsidize heavier end users. It would also foreclose practices that may appropriately align incentives to encourage efficient use of networks.”[24]
In its 2015 Order, the agency offered “no blanket findings” regarding data caps, noting that such practices were the “norm” and that consumers benefit from more options among service choices, but that the practices could “potentially… disadvantage competing over-the-top providers.”[25]
In its 2016 approval of Charter Communications’ acquisition of Time Warner Cable and Bright House Networks, the FCC prohibited the merged firm from imposing data caps or usage-based pricing for its residential broadband service.[26]
In June 2023, FCC Chair Jessica Rosenworcel asked her fellow commissioners to support a formal notice of inquiry (NOI) to learn more about how broadband providers use data caps on consumer plans, despite a “demonstrated technical ability to offer unlimited data plans.”[27] The FCC simultaneously opened a “data portal,” which solicited “narrative information” about consumers’ experiences with data caps.
In November 2023, the commission adopted digital-discrimination rules, under which data caps and pricing could be regulated to “prevent[] digital discrimination of access based on income level, race, ethnicity, color, religion, or national origin.”[28]
The commission’s 2024 Order also provided no “blanket findings,” concluding that data caps and usage-based pricing may be beneficial to consumers if used to manage congestion and to offer lower-cost broadband to consumers who use less broadband, but also may be harmful to consumers if not used for these purposes. The agency indicated it would evaluate individual data-cap practices on a case-by-case basis under the order’s general-conduct standard.[29]
In October 2024, the commission issued its NOI, soliciting comment on whether data caps affect consumers’ ability to use the internet; whether they discourage consumers from purchasing and using any over-the-top applications, services, and devices (particularly smart devices); and whether they affect free speech.[30]

IV. Managing Network Congestion

FIGURE 2: Data Usage by Hour of Day


SOURCE: Malone, et al. (2021)	SOURCE: OpenVault (2024)

Given abundant capacity, throttling, paid prioritization, and data caps become all the more unreasonable. This is already apparent in broadband plans, both wireline and mobile, where increasingly there are very high to no data caps. As more fiber is laid, data caps should disappear altogether. Certainly, the need to manage the volume of traffic as a matter of “reasonable network management” will be even less plausible than it is today as time goes on.[51]

V. The Economics of Data Caps and Usage-Based Pricing

A. Promoting Economic Efficiency Through Cost Alignment

The FCC adopted this fairness and economic efficiency framing in its 2010 Order:

However, prohibiting tiered or usage-based pricing and requiring all subscribers to pay the same amount for broadband service, regardless of the performance or usage of the service, would force lighter end users of the network to subsidize heavier end users. It would also foreclose practices that may appropriately align incentives to encourage efficient use of networks. The framework we adopt today does not prevent broadband providers from asking subscribers who use the network less to pay less, and subscribers who use the network more to pay more.[59]

FIGURE 3: Flat-Rate Billing

FIGURE 4: Usage-Based Billing

Lower prices for “entry-level” plans (from $75 a month to $10.50 a month): Konstantinos Poularakis et al. find that data caps reduce service prices for “lightweight” users;[61] Juan Sebastián Vélez-Velásquez finds that low-income households benefit from usage-based pricing, while higher-income households are worse off.[62]
Increased broadband adoption (from two consumers to three consumers).
Reduced usage (from 1,250 GB a month to 1,108 GB a month): Malone et al. find that “[s]ubscribers facing three-part tariffs have lower average usage than subscribers on unlimited plans,” driven mainly by changes among heavy users;[63] Aviv Nevo et al. find that “usage-based pricing is an effective means to remove low-value traffic.”[64]
Increased provider revenues (from $150 a month to $166 a month).
ISPs recover costs associated with heavy users (from losses of $75 a month on high-usage consumers to break-even).
A slight decrease in consumer surplus (driven by a decrease in high-usage consumer’s consumer surplus): Nevo et al. find that “usage-based pricing is effective at lowering usage without reducing consumer welfare significantly, relative to a world with just unlimited plans;”[65] Vélez-Velásquez finds a small change in consumer surplus “because winners and losers balance each other.”[66]
Increased total surplus or social welfare (from $388 to $416);[67]
Increased fairness (price reflects cost; no cross-subsidy from medium to high-usage consumer): Malone et al. find that “the three-part tariff saves network costs and narrows the gap, between light and heavy users, in price per Gigabyte used.”[68]

B. Recovering High Fixed Costs of Broadband Infrastructure

FIGURE 5: US Broadband Provider Capital Expenditures ($B)

We find that usage-based pricing is effective at lowering usage without reducing consumer welfare significantly, relative to a world with just unlimited plans. This is driven directly by the finding that marginal content is not very valuable and that consumer welfare is mainly driven by infra-marginal usage.[73]

[t]his revenue-maximizing price is in the middle of the range of prices currently offered for Gigabit service in the U.S…, due to restrictions on rates from local municipalities, an ISP may have a difficult time charging this rate.[75]

VI. Policy Framework for Broadband Data Caps and Usage-Based Pricing

A. Transparency and Clear Disclosure of Policies to Consumers

B. Antitrust Law and Targeted Ex-Post Enforcement

VII. Conclusion

[3] Internet, Broadband Fact Sheet, Pew Research Ctr. (Jan. 31, 2024), https://www.pewresearch.org/internet/fact-sheet/internet-broadband.

[4] Id.

[5] 2022 American Community Survey 1-Year Estimates, U.S. Census Bureau (2022), Table Id. S2801, https://data.census.gov/table?q=s2801&y=2022.

[8] Id.

[10] Arthur Menko Business Planning Inc., 2023 Broadband Pricing Index, USTelecom (Oct. 2023), available at https://ustelecom.org/wp-content/uploads/2023/10/USTelecom-2023-BPI-Report-final.pdf.

[13] OpenVault Broadband Industry Report (OVBI): 1Q 2019, OpenVault (May 2019), available at https://openvault.com/wp-content/uploads/2021/05/OVBI_Q1_Report_UPDATE.pdf.

[14] Three-part tariffs are an economic term describing pricing that has three components and is unrelated to rate tariffs under common carrier and similar regulation.

[16] For a history of internet congestion, see Steven Bauer, David D. Clark & William Lehr, The Evolution of Internet Congestion, SSRN (Aug. 15, 2009), https://ssrn.com/abstract=1999830.

[18] Thomas W. Hazlett, A Squelchy Net Neutrality Ruling by the FCC, Financial Times (Sep. 30, 2008).

[19] John Mahoney, Comcast’s 250GB Data Caps Now Official, Starting in October, Gizmodo (Aug. 28, 2008), https://gizmodo.com/comcasts-250gb-data-caps-now-official-starting-in-octo-5043253.

[21] OIAC Report, supra note 15.

[22] AT&T Institutes Wireless Data Cap, Morning Edition (Jun. 7, 2010), https://www.npr.org/2010/06/07/127525710/at-t-institutes-wireless-data-cap.

[30] NOI, supra note 1 ¶ 20.

[31] NOI, supra note 1 ¶ 13.

[32] Supra note 7 (calculations based on weights assigned by OpenVault).

[34] Broadband Insights Report (OVBI): 4Q22, OpenVault (Feb. 2023), available at https://openvault.com/wp-content/uploads/2023/02/OVBI_4Q22_Report.pdf.

[36] Id.

[38] Scott Jordan, A Critical Survey of the Literature on Broadband Data Caps, 41 Telecomm. Pol’y 813 (Oct. 2017).

[39] Malone et al., supra note 37; Broadband Insights Report (OVBI): 4Q23, OpenVault (Feb. 2024), available at https://openvault.com/wp-content/uploads/2024/02/OVBI_4Q23_Report_v3.pdf.

[40] Supra note 38.

[43] Malone et al., supra note 37 at 12.

[44] Id. at 38.

[45] Id. at 32.

[46] Id. at 35.

[47] Id. at 38.

[49] Supra note .

[51] Comments of the Electronic Frontier Foundation, WC Docket No. 23-320 (Dec. 14, 2023) at 7.

[52] Daniel A. Lyons, Internet Policy’s Next Frontier: Usage-Based Broadband Pricing, 66 Fed. Comm. L. J. 1, 23 (2013).

[53] Id.

[54] Id.

[56] David Hyman, Why Bandwidth Pricing Is Anti-Competitive, Wall St. J. (Jul. 7, 2011), https://www.wsj.com/articles/SB10001424052702304447804576414220570134518.

[57] In the Matter of Empowering Broadband Consumers Through Transparency, Order, CG Docket No. 22-2 (Jul. 18, 2023), available at https://docs.fcc.gov/public/attachments/DA-23-617A1.pdf.

[58] Supra note 38.

[59] 2010 Order, supra note 24.

[62] Juan Sebastián Vélez-Velásquez, Quantifying the Effects of Price Discrimination Under Imperfect Competition, 72 J. Indus. Econ. 429 (Mar. 2024).

[63] Supra note 41.

[64] Aviv Nevo, John L. Turner, & Jonathan W. Williams, Usage-Based Pricing and Demand for Residential Broadband, 84 Econometrica 411, 440 (Mar. 2016).

[65] Id. at 414.

[66] Supra note 62 at 449.

[68] Supra note 41 at 1035.

[69] 2022 Broadband Capex Report, USTelecom (Sep. 8, 2023), available at https://ustelecom.org/wpcontent/uploads/2023/09/2022-Broadband-Capex-Report-final.pdf.

[73] Aviv Nevo, John L. Turner, & Jonathan W. Williams, Usage-Based Pricing and Demand for Residential Broadband, 84(2) Econometrica 411, 414 (Mar. 2016).

[75] Id at 38.

[76] See generally Robert D. Willig, Pareto Superior Nonlinear Outlay Schedules, 11 Bell J. Econ. 56 (1978).

[78] Supra note 24 ¶ 55.

[79] Supra note 57.

PRESENTATIONS & INTERVIEWS

Lazar Radic on Turkish Competition Law

Lazar Radic • October 9, 2024

ICLE Senior Scholar Lazar Radic was a guest on CNBC Turkey to discuss proposed changes to Turkish competition law. Video of the full segment is . . .

ICLE Senior Scholar Lazar Radic was a guest on CNBC Turkey to discuss proposed changes to Turkish competition law. Video of the full segment is embedded below.