Antitrust & Competition Policy Blog

The Sequel to Microsoft?

AMD filed a suit against chip maker Intel, alleging that the chip manufacturer abused its market power in an exclusionary manner.  Articles from Electronic News, The Washington Post, The Inquirer and PC World offer varied perspectives. 

Intent vs. Effects: Another Perspective

Last week, I posted links to articles by Marina Lao and Thomas McGreavey, each making the case for an intent-based, as opposed to an effects-based, approach to antitrust law.  Geoffrey A. Manne,  a professor at Lewis & Clark Law School, and Marc Williamson, a partner with Latham & Watkins, make the case for the economic effects based approach in Hot Docs and Cold Economics, forthcoming in Arizona Law Review.  They make the following point:

While it is beyond dispute that antitrust adjudication is difficult, we show that the regulatory and scholarly effort to bring business documents to bear in proving antitrust cases has a "the light's better over here" feel to it. It is undoubtedly easier to "discover" anticompetitive behavior and relevant markets by inferences from business language than it is from rigorous economic analysis. Not only regulators but also courts (to say nothing of juries) are moved by business rhetoric. However, we contend that business rhetoric bears little relationship to economic reality. Corporate managers are not, generally, economists; nor are they antitrust lawyers. Accounting, accountability, personal incentives and other concerns that do not relate in an obvious way to the maximization of the firm's profits influence the daily operation of business - and the language of business - far more than do underlying economic and legal concepts. Reliance by courts and regulators on accounting information, business characterizations and expressions of intent to demonstrate anticompetitive effect is thus misplaced. The likelihood of error resulting from the use of business documents is substantial. For these reasons, principled antitrust enforcement must rely on evidence of actual economic effect, rather than flawed perceptions of business conduct.

FTC report on benefits of P2P

Shortly before the Supreme Court ruled against Grokster, the FTC issued a report on the benefits of P2P networks.   It will be interesting to see how this plays out in Congress.  I have not read the Supreme Court's decision yet, but based on The Washington Post article,  my reading is that the unanimous Court  emphasized  Groskter's intent in inducing infringement, creating an issue that defeats summary judgment. 

Supreme Court Rules that Cable Companies Need NOT Open up Access

This from the Washington Post site.

Bid Rigging on the High Seas

The Fourth Circuit ruled on June 14 that Gosselin World Wide Moving did not have immunity from the antitrust laws under the Shipping Act.  The Act's antitrust immunity provisions, enacted in 1916 to allow US shipping companies on a level playing field with non-US companies,  were read narrowly and did not apply to the criminal bid rigging conduct.    Gosselin was accused of a price conspiracy in transporting the belongings of military personnel overseas for the Department of Defense.

Two Interesting articles

I received two offprints recently, each providing a unique perspective on antitrust law.

Marina Lao, Professor of Law at Seton Hall Law School, makes the case for a deeper consideration of intent evidence in monopolization cases.  She concluides in "Reclaiming A Role for Intent Evidence in Monopolization Analysis," 54 American University Law Review 151-213 (2004), that when a purely economic effects analysis produces inconclusive results, "we should turn to intent evidence for further guidance and possibly a proxy for effect."  This approach, by the way, is analogous to the treatment of intent evidence in trademark infringement cases, where intent evidence can be used, for example, to support a finding of consumer confusion or diversion. 

Timothy Greaney, Professor of Law and Director, Center for Health Law Studies at Saint Louis University Law School, analyzes "Chicago's Procrustean Bed" at 71 Antitrust Law Journal 857-920 (2004) (SSRN LINK).  Professor Greaney's article looks at the application of antitrust law in the health care sector makes a self-described "modest claim" that "the tendency in practice to overlook market imperfections, together with many received assumptions and doctrines, often yields a distorted picture economic relations in health care markets."  The claim is an important one for those who seek to rethink the classic Chicago School paradigm in antitrust as applied to merger analysis in the health care industry.  Professor Greaney, like Professor Lao, takes the Chicago School to task for downplaying the role of intent evidence in antitrust.

Thanks for sending me these offprints and keep them coming!

American Bar Association Amicus Brief in Support of Cert Petition in Illinois Tool

The ABA brief in support of the grant of cert explains why this case is important: it offers a chance for the Court to clarify the standard for tying arrangements and the treatment of IP rights under antitrust.  As posted yesterday, the Court granted cert in the case Monday. 

Extradition From UK to US in Antitrust Case

In the first ever extradition case involving antitrust, the UK court, earlier this month, approved the extradition of Ian Norris, Chief Executive of Morgan Crucible Co., to the US for alleged participation in a price fixing conspiracy.  the extradition reflects a lowered standard  under a treaty between the US and UK enacted two years ago.  The US Senate has yet to ratify the extradition treaty. 

Supreme Court Will Review IP-Antitrust Tying Case

The Court granted the certiori petition in Illinois Tool Works v. Independent Ink yesterday.  The case was decided in January 2005 by the Federal Circuit, which held that patent ownership creates a presumption of market power in the analysis of tying arrangements.  Not only does the 2005-2006 term promise to be an interesting one for antitrust law (with review of the tying issue in Illinois Tool and of the Robinson-Patman issue in Volvo), but the decision in Illinois Tool can potentially address the problem of the relationship between antitrust law and intellectual property that has dogged many appellate courts in the last 15 years.  The Court will most likely take the opportunity to clarify the law of tying since Jefferson Parish and Kodak.   

Article by Alan Meese

Alan J. Meese, Ball Professor of Law at William & Mary Law School, recently sent me a copy of his new article "Intrabrand Restraints and The Theory of the Firm," published at 83 North Carolina Law Review 5 (2004).  Professor Meese argues that the antitrust treartment of intrabrand restraints is inconsistent with the transaction cost theory of the firm and that a more rational institutional framework, rather than neoclassical price theory, should provide the basis for intrabrand restraints.  His recommendation? Per se legality.  Thanks for sharing an interesting article, Alan.

Census of Law Professor Bloggers

This morning's PrawfsBlawg has an interesting census of the current law professor blogging population.  They report that 103 law professors currently blog; we have 24 law professors who blog as part of our Law Professor Blogs Network.

PrawfsBlawg notes that of the 103 law professor bloggers, 80.6% (83) are male and 19.4% (20) are female.  The comparable numbers for the 24 members of the Law Professor Blogs Network:  62.5% (15) male and 37.5% (9) female.

Here are the law schools with the most law professor bloggers:

Law Schools with Most Law Prof Bloggers
School	Number of Bloggers
San Diego	7
Cincinnati	4
George Mason	4
Ohio State	4
UCLA	4
George Washington	4
Stanford	4
St. Thomas	4
Chapman	4

Billboards on the Virtual Highway?

David Giacolone passed on this disturbing piece of news:  The Kentucky Attorney General has taken the position that a blog is an advertisement, requiring an attorney blogger to pay a mandatory $ 50 fee for each post.  More on this at David's blog where you can also find strategies to put a stop to this dangerous bit of legal prestidigitation. 

Antitrust and IP: A View From The DOJ

Hewitt Pate, the current head of the antitrust division in the Department of Justice, spoke on antitrust and intellectual property last week at the 2005 EU Competition Workshop in Florence, Italy.   His talk was subtitled Licensing Freedom and the Limits of Antitrust.  Here's a sample:

"Sound antitrust enforcement condemns anticompetitive conduct. It does not attempt to regulate the amount of competition in a general sense or address vague questions of fairness. It does not attempt to create an affirmative incentive for procompetitive conduct, by promising any specific reward or legal recognition for competitors who play by the rules. It focuses on specific anticompetitive actions, as judged by their effects on markets and consumer welfare. Although this narrow focus is a limitation, at the same time it is a great strength--it makes possible objectivity, predictability, and transparency.

"Intellectual property laws, by contrast, provide a complex system of affirmative rewards for an important type of procompetitive behavior--innovation. They take consumer welfare into account, but in different ways than does antitrust. First, they reward innovators with exclusive rights that serve as an incentive to bring new and improved goods and services to market. The hope is that such innovations will lead to increased competition and increased consumer welfare in the long term. Second, they strike a balance between these rights and certain types of public access, such as fair use under copyright law or the disclosure requirement and the limited term of patents. They also include a fail-safe procedure under which a rival or a customer can sue to declare an intellectual property right noninfringed or unenforceable for a number of reasons. So the legislature, via the IP laws, has struck a balance between the rights of IP owners, the rights of consumers, and concerns for a competitive marketplace. This may or may not be the correct balance; nevertheless, it is the one the legislature has chosen.

"It is important to understand precisely what reward is offered by the IP laws. Each type of IP right provides "exclusivity" for its owner. What does this exclusivity mean? It does not mean a right to commercialize any invention or creation. The owner of an improvement patent, for example, may find itself blocked from practicing its own patent if it cannot secure permission from the original patentee. Instead, what IP rights provide is the right to exclude others. The right to exclude is not simply one of the rights provided by intellectual property, it is the fundamental right, the foundation upon which the entire IP system is built. "

Coming Soon to the Supreme Court: A Robinson-Patman Case

The Supreme Court granted review of a case raising issues of competition and dealer foreclosure under the Robinson-Patman Act.  The case will be heard during the 2005-2006 term.  In Volvo v.  Reeder, the Court will decide whether Volvo's practice of receiving competitive bids from potential truck retailers in exchange for price concessions constitutes price discrimination prohibited under the Robinson-Patman Act.   The trial court and the US Court of Appeals for the 8th Circuit have found against Volvo, with the appellate court concluding that Reeder's fall in profits after being discontinued as a Volvo dealer was a result of Volvo's disfavoring Reeder in comparison to other retailers.  The dissenting judge in the 8th Circuit questioned whether Robinson-Patman was applicable since Volvo granted concessions to retailers who were not in direct competition with Reeder.

Commerce, Cannabis, and Competition

As perhaps you have heard by now, the Supreme Court upheld Congress' power to regulate medicinal marijuana under the Commerce Clause in Gonzales v. Raich, decided yesterday.  The decision was correct as far as federalism is concerned but bad policy from the perspective of drug regulation.   It is unlikely that Congress will backtrack on the war on drugs, but perhaps sometime in the next ten years (as the wind on the Hill starts blowing in a different direction), there will be a federal exception for medicinal uses.  Most likely what will happen before then is a policy of, to coin a phrase, "don't tell, don't prosecute."  At least, I hope federal agents don't start going after the infirm and the weak even if they have the power to do so.

Jose Melendez, founder of the Concerned Citizens Coalition to Criminalize Prohibition in Florida, offers a novel theory: the war on drugs is anticompetitive policy and has been influenced by members of industry that want to monopolize and raise the price of legal intoxicants and pharmaceuticals.   Mr. Melendez offers a colorful and interesting perspective which probably meshes with some of the realities of the history of marijuana regulation in the United States, even if the theories are a bit too conspiratorial. 

The Economic Benefits of NASCAR...

...not so much from the activity but the business form.

Professor Stephen Ross of the University of Illinois School of Law and Professor Stefan Szymanski of the Department of Economics in Imperial College, London, have recently published a paper in the University of Illinois Law and Economics Working Paper Series entitled Antitrust and Inefficient Joint Ventures: Why Sports Leagues Should Look More Like McDonald's and Less Like the United Nations.  Their thesis is that joint ventures, such as sports leagues, may be more efficient and responsive to consumer needs if there was more integration of organizational form. Specifically, they suggest that a league like the NFL should set up in a corporate form with the corporation making unilateral, and independent, decisions on management, much like the organization of NASCAR or McDonald's franchises.  The inefficiency of the current organization form for joint ventures stems from transaction costs in group decision making.  The authors "argue that courts could view the current structure as an unlawful refusal of club owners to participate in a sporting competition that they themselves cannot control, which we argue unreasonably restrain trades and unlawfully maintains monopoly power."

The Vulnerable Consumer Sovereign

The Annenberg Public Policy Center at The University of Pennsylvania released a study on consumer fraud on and off the Internet.  Some of the findings reported in "Open to Exploitation" include:

Seventy-five percent of respondents wrongly believe that if a Web site has a privacy policy, it won't share their information with third parties.

Almost half of the respondents, 49%, couldn't identify "phishing" scam e-mail messages, which information thieves dress up to look as though they come from a legitimate company, such as a bank or store, to lure users to enter sensitive information. Requested information might include Social Security numbers, passwords and bank account numbers.

Sixty-two percent of respondents didn't know that an online store can simultaneously charge different prices for the same item based on information it has on different shoppers.

The study concludes with policy recommendations to educate and provide better information for consumers.  A link to an article about that study that contains a pdf link can be found here.

Microsoft meets EU deadline

Microsoft Corp. met its midnight deadline to submit a compromise on its landmark antitrust case with the European Union, and EU regulators will likely assess the proposal for weeks before deciding whether to impose fines, officials said yesterday.

"We have submitted the proposals, and we are awaiting a response from the EU Commission," said Microsoft spokesman Tom Brookes. If the EU deems the proposals insufficient, it could slap heavy sanctions on the software titan.

"We will now analyze it very carefully and decide whether it is sufficient or not," EU antitrust spokesman Jonathan Todd said.

A person familiar with the situation said that Microsoft's last-minute submission contained a "few new proposals," but declined to describe their content. A spokesman at Microsoft's Redmond, Wash., headquarters wouldn't comment on the content of the proposals.

Microsoft has to answer complaints from the EU head office that it wasn't fully complying with last year's ruling against the company, which imposed a fine of €497 million ($612 million) and ruled that the company abusively wielded its Windows software domination to lock its competitors out of the market.

The EU has the power to slap fines as high as 5% of a company's daily global revenue if its antitrust decisions aren't respected. In its last fiscal year, which ended June 30, 2004, Microsoft had revenue of $36.8 billion.

Both sides had contacts almost up until midnight Tuesday, the EU-imposed deadline following weeks of negotiations.

"We received all sorts of documents," said Mr. Todd, refusing to discuss the content of the proposal.

Once the commission has come to a decision on the Microsoft proposal, it will inform the company, which will then have time to rebut. Then the EU member states will be consulted, and the full EU executive commission will decide on the case. The whole process will probably last until the end of July.

During the last days of talks, negotiations centered on pricing and royalties that can be charged to allow software competitors to better dovetail their products with Microsoft's Windows platform.