Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

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Friday, April 20, 2007

OFT Discussion Paper on Private Rights of Action

Posted by D. Daniel Sokol

Britain's Office of Fair Traiding (OFT) recently published a discussion paper and announced informal consultation on increasing the use of private rights of action.  This of course means a long term pay day for antitrust lawyers and economics.  There may also be important public policy reasons to encourage antitrust private rights of actions.  The discussion paper is available here.

April 20, 2007 | Permalink | Comments (0) | TrackBack (0)

Seminar Series at DOJ and FTC

Posted by D. Daniel Sokol

One way to read the tea leaves at the US antitrust agencies to determine future potential analytic frameworks and policy priorities is by reviewing the topics and papers in the DOJ and FTC economics speaker series in a given academic semester.  The DOJ speaker list is available here and FTC list is available here.

April 20, 2007 | Permalink | Comments (0) | TrackBack (0)

A New Balance between IP and Antitrust

Posted by D. Daniel Sokol

When Mark Lemley writes something new, it is always worth a read.   In his new paper,  A New Balance between IP and Antitrust, he stakes out a position in which both of these legal areas should strike a balance between competition and monopoly to promote innovation and efficiency.

ABSTRACT: In this article, I introduce the interaction between intellectual property (IP) and antitrust law. I describe the ways in which these two important areas of government regulation are and are not in tension, and discuss the history of the relationship between these laws. I argue that IP and antitrust have cycled between over- and under-protection, and that we are currently (and mistakenly) conditioned to think of private property and private ordering as efficient in and of themselves, rather than as efficient only in the context of robust market competition. Further, I argue that antitrust can serve the goals of innovation and dynamic efficiency directly in circumstances in which competition, not monopoly, serves as a spur to innovation. The goal of the IP and antitrust laws should be to seek a robust balance between competition and monopoly in the service of dynamic efficiency. When IP laws are strong, antitrust laws should also be strong, and vice versa.

April 20, 2007 | Permalink | Comments (0) | TrackBack (0)

Thursday, April 19, 2007

Should We Take Buyer Power Seriously?

Posted by D. Daniel Sokol

Greg Werden of the DOJ Antitrust has an interesting new working paper on this topic, entitled Monopsony and the Sherman Act: Consumer Welfare in a New Light.

ABSTRACT: The Weyerhaeuser case presents the scenario of a firm that successfully engages in exclusionary conduct, obtains a monopsony, and yet does not have any potential to injure the end users of its products. Rather, the conduct has the immediate effect of injuring competitors, and the longer-term effect of injuring input sellers. Commentators have argued that the antitrust laws are indifferent to latter injuries because they are concerned only with "consumer welfare." This essay demonstrates that Congress was, and the courts have been, far from indifferent to the plight of sellers exploited by monopsonies. This essay shows that Sherman Act cases referring to "consumer welfare" have not indicated that they meant end-user welfare rather than aggregate welfare. Finally, this essay argues that promoting consumer welfare is a goal of the Sherman Act, but only a goal, and that making end-user welfare the touchstone under the Act could have extraordinarily undesirable consequences.

April 19, 2007 | Permalink | Comments (0) | TrackBack (0)

AEI-Brookings Joint Center Conference on The Role of Competition Analysis in Regulatory Decisions

Posted by D. Daniel Sokol

The AEI-Brookings Joint Center has what looks to be a very interesting event (details here) on the role of competition in government regulation on Tuesday, May 15, 2007.

8:30 a.m.
Registration and Continental Breakfast

9:00
Welcome
: Robert Hahn, Joint Center

9:10
Introduction: Deborah Platt Majoras, FTC

9:45
Panel I: How Can Agencies Foster Competition in Their Industries?

Panelists
:
Paul Atkins, SEC
Sean Ennis, OECD
Daniel Meron, Department of Health & Human Services
Charles Nottingham, Surface Transportation Board

11:15
Panel II: Identifying Abuses of the Regulatory Process by Firms That Wish to Harm Their Competitors
Panelists:
Marc Kesselman, USDA
Brian Mannix, EPA
Jeffrey Rosen, OMB
Todd Zywicki, GMU

12:30 p.m.
Luncheon
:
Thomas O. Barnett, DOJ

1:45
Panel III: Where Should We Go from Here?
Panelists
:
Dennis Carlton, DOJ
William Kovacic, FTC

Timothy Muris, GMU
Robert Pitofsky, Arnold & Porter LLP

3:00
Adjournment

April 19, 2007 | Permalink | Comments (0) | TrackBack (0)

Wednesday, April 18, 2007

Antitrust Smackdown: Scherer and White Debate Leegin

Posted by D. Daniel Sokol

Over on the Wall Street Journal's Econoblog, we have an episode of Antitrust Smackdown in which Mike Scherer of Harvard and Larry White of NYU debate the merits of Leegin. 

April 18, 2007 | Permalink | Comments (0) | TrackBack (0)

William E. Swope Antitrust Prize Awarded

Posted by D. Daniel Sokol

Jones Day has just announced the winner of the annual $10,000 William E. Swope writing competition prize for law school and recent graduates.  I am happy to report that a University of Chicago student, Justin Hurwitz won this year's competition.  Justin's piece, The Value of Patents in Industry Standards: Avoiding License Arbitrage with Voluntary Rules, addresses standard-setting competition issues in the antitrust-IP interface.  There were two runner up prizes.  One went to Christopher Grengs, an Attorney Advisor at the Federal Trade Commission.  His piece is entitled Verizon v. Trinko: From Post-Chicago Antitrust to Resource-Advantage Competition.   Another runner up was Oliver Zhong, a second-year student at the University of Michigan Law School.  Zhong's work  addresses The Failing Company Defense After the Commentary: Let It Go.

According to the Jones Day press release:

The third year of the William E. Swope Writing Competition is now underway. The contest is open to all students currently enrolled in a full-time or part-time Juris Doctorate or more advanced degree program at a law school accredited by AALS (or a law school of equivalent standing if outside the U.S.), to current judicial clerks who have graduated from such a program, and to practicing lawyers who graduated from such degree programs in May 2002 or later.

More on the competition and its rules is available here.

To plug the top tier Antitrust practice at Jones Day even more, I am happy to report that Bruce MacDonald has recently joined Jones Day from DOJ, where he served as the Deputy Assistant Attorney General in the Antitrust Division with responsibility over regulated industries.  In two weeks, Bruce will guest lecture at my seminar on buyer power issues.  Because it has been a number of years since Bruce has had to fill out time sheets, I have put Bruce's participation in law firm terminology-- 1.0 hours speech (non-billable).

April 18, 2007 | Permalink | Comments (0) | TrackBack (0)

Reforming Entry Analysis in Merger Cases

Posted by D. Daniel Sokol

Last Friday I attended the very good annual Loyola Chicago Institute for Consumer Antitrust Studies conference that Spencer Waller puts together.  Among the papers presented was one by John Kirkwood of Seattle University - School of Law and Richard Zerbe of the University of Washington - Daniel J. Evans School of Public Affairs entitled Reforming Entry Analysis in Merger Cases.

ABSTRACT: Entry analysis is a critical, yet often poorly executed component of the antitrust evaluation of a merger. While a merger cannot create market power if entry is easy, courts generally evaluate the ease of entry without asking the right economic questions. The 1992 Merger Guidelines identified the three components of entry analysis - timeliness, likelihood, and sufficiency - but courts typically resolve the most difficult  issue - likelihood - in a few paragraphs, asking whether the relevant market has entry barriers but not whether those barriers are high enough to render entry unprofitable. This paper examines every litigated federal merger case since April 1992 and finds, for example, that courts never determined the minimum volume of sales an entrant would need to be profitable and rarely examined whether the reactions of incumbent firms would prevent the entrant from attaining that volume. In order to focus the courts on the right issues and provide them with better evidence to resolve those issues, this paper proposes a new approach to entry analysis. Under it, the government would have the burden of showing not only that the relevant market has barriers but also that the barriers are high enough to make entry unprofitable. If defendants contend that entry is likely, they would have the burden of demonstrating a "path to profitability" - a business strategy and financial plan that is likely to enable an entrant to both make money and promptly eliminate the merger's anticompetitive effects. This approach would improve the quality of entry analysis while maintaining its workability.

April 18, 2007 | Permalink | Comments (0) | TrackBack (0)

Tuesday, April 17, 2007

DOJ/FTC Intellectual Property Report is Out

Posted by D. Daniel Sokol

Just in time for the ABA Spring Meeting, the DOJ and FTC released Antitrust Enforcement and Intellectual Property Rights:  Promoting Innovation and Competition:  A Report Issued By the U.S. Department of Justice and the Federal Trade Commission.  I am still trying to read through the AMC Report.  This means even more reading over the weekend.

The press release summarizes the conclusions:

  • Antitrust liability for mere unilateral, unconditional refusals to license patents will not play a meaningful part in the interface between patent rights and antitrust protections. Antitrust liability for refusals to license competitors would compel firms to reach out and affirmatively assist their rivals, a result that is in tension with the antitrust laws.
  • Conditional refusals to license that cause competitive harm are subject to antitrust scrutiny.
  • Joint negotiation of licensing terms by standard-setting organization participants before the standard is set can be procompetitive. Such negotiations are unlikely to constitute a per se antitrust violation. The agencies will usually apply a rule of reason analysis when evaluating these joint activities.
  • The agencies evaluate the competitive effects of cross-licenses and patent pools under the rule of reason framework articulated in the 1995 Antitrust-IP Guidelines.
  • Combining complementary patents within a pool is generally procompetitive. A combination of complementary intellectual property rights, especially those that block the use of a particular technology or standard, can be an efficient and procompetitive way to disseminate those rights to would-be users of the technology or standard. Including substitute patents in a pool does not make the pool presumptively anticompetitive–competitive effects will be ascertained on a case-by-case basis.
  • The agencies apply a rule of reason analysis to assess intellectual property licensing agreements, including non-assertion clauses, grantbacks, and reach-through royalty agreements.
  • The Antitrust-IP Guidelines will continue to guide the agencies’ analysis of intellectual property tying and bundling. The agencies consider both the anticompetitive effects and the efficiencies attributable to a tie, and would be likely to challenge a tying arrangement if: (1) the seller has market power in the tying product, (2) the arrangement has an adverse effect on competition in the relevant market for the tied product, and (3) efficiency justifications for the arrangement do not outweigh the anticompetitive effects. If a package license constitutes tying, the agencies will evaluate it under the same principles they use to analyze other tying arrangements.
  • The agencies consider both the anticompetitive effects and the efficiencies attributable to a tie or bundle involving intellectual property.
  • The starting point for evaluating practices that extend beyond a patent’s expiration is an analysis of whether the patent in question confers market power. If so, these practices will be evaluated under the agencies’ traditional rule of reason framework, unless the agencies find a particular practice to be a sham cover for naked price fixing or market allocation.
  • Collecting royalties beyond a patent’s statutory term can be efficient. Although there are limitations on a patent owner’s ability to collect royalties beyond a patent’s statutory term, see Brulotte v. Thys Co., 379 U.S. 29 (1964), that practice may permit licensees to pay lower royalty rates over a longer period of time which can reduce the deadweight loss associated with a patent monopoly and allow the patent holder to recover the full value of the patent, thereby preserving innovation incentives.

April 17, 2007 | Permalink | Comments (0) | TrackBack (0)

Elhauge and Geradin's Global Antitrust Law and Economics (Foundation Press 2007)

Posted by Shubha Ghosh

Professors Einer Elhauge  (Petrie Professor of Law, Harvard University) and Damien Geradin (Partner, Howrey, LLP; Professor of competition law and economics, TILEC, Tilburg University) have made a fine contribution to the fields of antitrust, comparative law, and law & economics with their new casebook Global Antitrust Law and Economics.   The casebook juxtaposes developments in US antitrust law and EC competition law through eight chapters. Beginning with an overview of the contrasting remedial systems in the US and the EC, the book considers, in order, horizontal agreements, unilateral conduct, vertical agreements, agreements affecting downstream competition, concerted action, mergers, and extraterritoral competition law and trade.    The book is a tour de force, suitable for advanced courses and seminars in competition policy and international trade.

Two aspects of the book, related to my areas of interest, illustrate its range and depth.  First, the chapter on horizontal agreements contains a a twenty five page section on intellectual property law, which compares the US and EC approaches to licensing restrictions.   The selected readings include the General Electric and New Wrinkle cases, the Erauw-Jacquery decision on plant seed licensing, the DOJ/FTC Joint Guidelines on Intellectual Property licensing, and EC Commission Regulation on Technology Transfer Agreements.   This brief section does a nice job of contrasting the normative positions underlying the US and the EC approaches, with the former emphasizing innovation and the latter emphasizing market competition.

Secondly, a law and economics perspective is integrated throughout the presentation of the materials.  If there is any criticism, it would be that there could have been more discussion of market competition and market structure issues as well as the welfarist assumptions underlying antitrust and competition law.  But at nearly twelve hundred pages, Elhauge Geradin's treatise size casebook overflows with insights into the present and future of global antitrust on both sides of the Atlantic.

Posted by D. Daniel Sokol

I too think very highly of this textbook and have been using portions of it (from a pre-publication copy) in my seminar this semester.  It fills a gap among casebooks as the only comparative casebook on US and EU antitrust/competition policy.  Next week Einer and Damien will be guest blogging with us about the casebook. 

April 17, 2007 | Permalink | Comments (0) | TrackBack (0)

National Champions and the Two-Thirds Rule in EC Merger Control

Posted by D. Daniel Sokol

Nationalism remains strong in cross border EU mergers.  That is, Member States of the EU sometimes make life very difficult from cross European mergers (the recent E.On attempt to acquire Endesa comes to mind as do some failed cross-border banking mergers) that might be beneficial to the EU but which would involve the acquisition of a country's firm by a firm of another Member State.  Another issue is one in which countries seek to promote national champions even if may create a domestic consumer welfare loss.  A new working paper by Andrew Scott entitled National Champions and the Two-Thirds Rule in EC Merger Control addresses this second issue and the potential for community-wide reform.

ABSTRACT: The 'two-thirds rule' stands as a caveat to the quantitative jurisdictional thresholds stipulated in the Merger Regulations. It prevents the attribution of a 'Community dimension' to large business mergers where two-thirds of the parties' respective turnovers are made in one and the same member state. It sees the relevant national authority and not the European Commission enjoy competence to assess the competitive effects of such a transaction. In the immediate aftermath of Gas Natural/Endesa - a case which the European Commission accepted only reluctantly did not possess a Community dimension - the Competition Commissioner mooted the legislative repeal of the two-thirds rule. The reception by member states of a proposal on these lines is unlikely to be uniformly generous. This note first reviews the origins and content of the two-thirds rule, before proceeding to consider the current momentum behind and prospects for successful reform. It suggested that a wider rapprochement between divergent perspectives on the best approach to achieving economic development both within and across the member states of the EC - and in particular on the problematic issue of support for 'national champions' - will likely be necessary before any revision can occur.

April 17, 2007 | Permalink | Comments (0) | TrackBack (0)

Monday, April 16, 2007

Visiting Professor Opportunities in Antitrust/Competition Law

Posted by D. Daniel Sokol

This is the time of year in which US law faculty begin to think about opportunities abroad to expand their teaching and research horizons.   The list of Fulbright opportunities available for law professors is available here.  Two countries have specific needs in antitrust law- Portugal and India.  Other countries have general needs in which one could still undertake competition related research and lecturing.   The deadline for Fulbright award applications is  August 1, 2007.

April 16, 2007 | Permalink | Comments (0) | TrackBack (0)

China and Antitrust/Competition Policy

Posted by D. Daniel Sokol

Antitrust is a regulatory tool to improve societal well being through a market based organization of the economy.  In a development context, antitrust works to create a more competitive environment to encourage growth and productivity. An antitrust agency is the primary domestic institution within a country’s antitrust system. It protects competition in a number of different ways. Ex ante, an antitrust agency can prevent anti-competitive conduct through merger review. By reviewing a proposed merger of two firms, an antitrust agency can address the potential anti-competitive effects of a merger prior to its consummation. Another ex ante role is that of competition advocacy. In this role, agencies attempt to mitigate the anti-competitive effect of policy by other parts of government—other agencies or the legislative process. Ex post, an antitrust agency brings cases against anti-competitive conduct whether unilateral or coordinated. Some competition advocacy is ex post and attempts to reduce the impact of anti-competitive laws and regulation already in place.

Within the antitrust international community, China and its potential adoption of an antitrust law is a hot topic and has been for a number of years, as China has been slow to adopt an antitrust law. We are beginning to see some academic literature on the future Chinese law and the types of issues and behavior that the law should address. In terms of enforcement priorities, given the nature of China’s economy—heavy government regulation, many state owned enterprises, and collusive practices among competitors, it seems to me that the priorities of the new agency should be focused almost exclusively on anti-cartel enforcement and competition advocacy. Mergers would be next, especially as Chinese companies begin to consolidate. It should be a long time before any new Chinese agency brings an abuse of dominance/monopolization case. To the extent that it does, the focus should be in regulated industries (e.g., transportation, energy, telecom), where distortions have the largest country-wide economic impacts. In an excellent speech at the Chicago Kent Law Review Conference on Latin AmericanLaw and Development this past Friday, Eduardo Perez Mota, President of the Federal Competition Commission of Mexico (CFC), outlined an enforcement agenda on advocacy and dominance cases focused on regulated industries. The CFC is one of the gems of Latin American antitrust enforcement agencies and has been in business since just before NAFTA was signed. It terms of an enforcement agenda, the CFC understands that the primary distortions in Mexico come from state action that either support state owned enterprises or recently privatized companies.

The above discussion is my way of introducing to a new working paper by Bruce Owen, Su Sun, and Wentong Zheng entitled China's Competition Policy Reforms: The Antimonopoly Law and Beyond.

ABSTRACT: More than twelve years have elapsed since China began its efforts to enact a comprehensive antitrust law. Today, drafts of the law are still being debated, with no real signs of enactment. Such a protracted legislative process is highly unusual in China, and can only be explained by the controversy the draft law generates. After a brief review of China's current competition policy and the new draft antitrust law, this paper discusses the fundamental issues in China's economy that give rise to the challenges facing China's antitrust policymakers in enacting the new antitrust law. These issues include the role of state-owned enterprises, perceived excessive competition in China's economy, mergers and acquisitions by foreign companies, the treatment of administrative monopolies, and the enforcement of the antitrust law. While those controversies create significant policy issues for China, they do not constitute valid objections to the enactment of the new antitrust law. Meanwhile, it will be important for China to recognize that the new antitrust law alone will not be sufficient to fully realize its goal of promoting competition in its economy; other reforms will be necessary as well. China will be better off by moving swiftly to enact the new antitrust law, while keeping the momentum to engage in those other reforms.

April 16, 2007 | Permalink | Comments (0) | TrackBack (0)

Sunday, April 15, 2007

Rules Versus Standards in Antitrust Adjudication

Posted by D. Daniel Sokol

Dan Crane of Cardozo Law School (whom I finally met on Thursday night) has an article forthcoming in the Washington & Lee Law Review that is worth reading-- Rules Versus Standards in Antitrust Adjudication.

ABSTRACT: Antitrust law is moving away from rules (ex ante, limited factor liability determinants) and toward standards (ex post, multi-factor liability determinants). This movement has important consequences for the structure of antitrust adjudication, including shifting ultimate decision-making down the legal hierarchy (in the direction of juries, trial courts sitting as fact-finders, and administrative agencies) and increasing the importance of economic experts. The efficiency consequences of this trend are often negative. Specifying liability determinants as open-ended, unpredictable standards increases litigation costs, chills socially beneficial industrial practices, allocates decision-making on microeconomic policy to unqualified juries, and facilitates strategic misuse of antitrust litigation by rent-seeking competitors. Instead of following a generalized preference for standards, courts should consider five factors in choosing the ex ante precision of liability determinants: (1) whether the lawsuit was brought by the government or a private party;  (2) whether the legal determinant would create liability or immunize against it; (3) whether  the remedy sought is prospective (i.e., injunctive) or retrospective (i.e., damages); (4) whether the conduct is idiosyncratic or paradigmatic; and (5) whether the misconduct alleged is collusion or exclusion.

April 15, 2007 | Permalink | Comments (0) | TrackBack (0)

The Prohibition of the Proposed Springer-Prosiebensat.1-Merger: How Much Economics in German Merger Control?

Posted by D. Daniel Sokol

It may be that German competition law is lacking in modern economic based reasoning in its merger analysis.  This is the view taken by a new working paper by Oliver Budzinski of the University of Marburg and Katharina Wacker of Heinrich-Heine Universitaet Duesseldorf entitled The Prohibition of the Proposed Springer-Prosiebensat.1-Merger: How Much Economics in German Merger Control?

ABSTRACT: We review the Bundeskartellamt (Federal Cartel Office Germany) decision on the proposed merger between Springer and ProSiebenSat.1 from an economic point of view. In doing so, it is not our goal to analyse whether the controversial decision by the Bundeskartellamt has been correct or flawed from a legal point of view. Instead, we analyse whether the economic reasoning in the decision document reflects state-of-the-art economic theory on conglomerate mergers. Regarding such types of mergers, anticompetitive effects either do not occur regularly or are more often than not overcompensated by efficiency gains, so that a standard welfare perspective demands reluctance concerning antitrust interventions. This is particularly true if two-sided markets, like media markets, are involved. However, anticompetitive conglomerate mergers are not impossible, in particular in neighbouring markets where there is some relationship between the products of the merging companies. In line with the more-economic approach in European merger control, a particular thorough line of argumentation, backed with particularly convincing economic evidence, is necessary to justify a prohibition of a conglomerate merger from an economic point of view. Against this background, we do not find the reasoning of the Bundeskartellamt entirely convincing and sufficiently strong to justify a prohibition of the proposed combination from an economic perspective. The reasons are that (i) the Bundeskartellamt fails to continuously consider consumer and customer welfare as the relevant standards, (ii) positive efficiency and welfare effects of cross-media strategies are neglected, (iii) in contrast, the competition agency sometimes appears to view profitability of post-merger strategy options to be per se anticompetitive (efficiency offence), (iv) the incontestability of the relevant markets is not sufficiently substantiated, (v) inconsistencies occur regarding the symmetry of the TV advertising market duopoly versus the unique role of the BILD-Zeitung and (vi) the employment of modern economic instruments appears to be underdeveloped. Thus, we conclude that the Bundeskartellamt has not embraced the European more-economic approach in the analysed decision. However, one can discuss whether economic effects are overcompensated in this case by concerns about a reduction in diversity of opinion and threats to free speech. Similar to the Bundeskartellamt, we do not consider these concerns in our analysis.

April 15, 2007 | Permalink | Comments (0) | TrackBack (0)