Antitrust & Competition Policy Blog

Removing Property from Intellectual Property and (Intended?) Pernicious Impacts on Innovation and Competition

Posted by D. Daniel Sokol

Scott Kieff of Washington University has a fascinating paper on Removing Property from Intellectual Property and (Intended?) Pernicious Impacts on Innovation and Competition.

ABSTRACT: Property rule treatment of intellectual property (IP) is said to cause “excessive” transaction costs, thickets, anticommons, hold-ups, hold-outs, and trolls, unduly taxing and retarding innovation, competition, and economic growth. The popular response has been to offer a shift towards some limited use of weaker liability rule treatment, usually portrayed as “just enough” to facilitate transactions in those special cases where the bargaining problems are at their worst and where escape hatches are most needed. This paper shows how over just the past few years, the patent system has been hugely re-shaped from a system having several major, and helpful, liability-rule-pressure-release-valves, into a system that is almost devoid of significant property rule characteristics. The paper then explores some harmful effects of this shift, focusing on the ways liability rule treatment can seriously impede the beneficial deal-making mechanisms that facilitate innovation and competition. The basic intuition behind this bad effect of liability rules is that they seriously frustrate the ability for a start-up or other market-challenging patentee to attract and hold the constructive attention of a potential contracting party (especially one that is a larger more established player) while preserving the option to terminate the negotiations in favor of striking a deal with a different party.

Federalism, Substantive Preemption, and Limits on Antitrust

Posted by D. Daniel Sokol

Bruce H. Kobayashi and Joshua D. Wright (both of George Mason University Law School) discuss Federalism, Substantive Preemption, and Limits on Antitrust in their latest working paper.

ABSTRACT: In Credit Suisse v. Billing, the Court held that the securities law implicitly precludes the application of the antitrust laws to the conduct alleged in that case.  In that case, the court considered several factors, including the availability and competence of other laws to regulated unwanted behavior, and the potential that application of the antitrust laws would result in "unusually serious mistakes".  This paper examines whether similar considerations suggest restraint when applying the antitrust laws to conduct that is normally regulated by state laws and other federal laws.  In particular, we examine the use of the antitrust laws to regulate the problem of patent hold up of members of standard setting organizations.  While some have suggested that this conduct illustrates a gap in the current enforcement of the antitrust laws, our analysis finds that such conduct would be better evaluated under the federal patent laws, and under state contract laws.

A "Plausible" Showing after Bell Atlantic Corp. v. Twombly

Posted by D. Daniel Sokol

Charles Campbell of Faulkner University, Jones School of Law discusses A "Plausible" Showing after Bell Atlantic Corp. v. Twombly in a forthcoming article in the Nevada Law Review.

ABSTRACT:  The United States Supreme Court's decision in Bell Atlantic Corp. v. Twombly is creating quite a stir. Suddenly gone is the famous loosey-goosey rule of Conley v. Gibson that a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.

Now a complaint must provide enough facts to state a claim to relief that is plausible on its face. Only decided last May, Bell Atlantic has been cited in over 3,700 cases. Already being described as a landmark decision, Bell Atlantic nonetheless has lawyers and judges scratching their heads over the precise pleading standard to apply in its wake. As the Second Circuit (mildly) put it, Considerable uncertainty concerning the standard for assessing the adequacy of pleadings has recently been created by the Supreme Court's decision in Bell Atlantic Corp. v. Twombly. Just what is a plausible showing that the pleader is entitled to relief under Rule 8(a)(2)?

I believe an answer lies in the 26-year-old decision of the Former Fifth Circuit in In re Plywood Antitrust Litigation. Plywood Antitrust requires, at a minimum, that a complaint . . . contain either direct or inferential allegations respecting all the material elements necessary to sustain a recovery under some viable legal theory. Already used in more than half the circuits, this standard paraphrases advice found in the venerable WRIGHT & MILLER for nearly 40 years.

Properly applied, this all . . . material elements standard satisfies Bell Atlantic's plausibility requirement in all respects. The Plywood Antitrust pleading standard works well after Bell Atlantic, first, because the Supreme Court referred to the standard, albeit parenthetically, with approval in Bell Atlantic. Second, it does much to harmonize the Federal Rules' goal of dispensing with pleading technicalities while still requiring enough general factual information about a pleader's claim to make the notice in notice pleading meaningful. Finally, and perhaps most importantly, it gives lawyers, litigants, and courts a standard they can actually use when drafting, or assessing the sufficiency of, pleadings.

Bell Atlantic v. Twombly: How Motions to Dismiss Become (Disguised) Summary Judgments

Richard Epstein of the University of Chicago Law School gives his take on the meaning of Twombly in Bell Atlantic v. Twombly: How Motions to Dismiss Become (Disguised) Summary Judgments.

ABSTRACT: The recent Supreme Court decision in Bell Atlantic v. Twombly stands at the crossroads of antitrust and civil procedure. As an antitrust case, Twombly makes sense on structural grounds. The FCC regulation of the telecommunications industry, and the many innocent explanations as to why each telecommunications company would stay out of its rival's territories obviated the need for further discovery. But in many other contexts, including Conley v. Gibson a case involving potential breach of the duty of fair representation on matters of racial discrimination discovery could flesh out the relevant factual issues. The Supreme Court's general disapproval of Conley sweeps far too wide. Discovery should only be denied when the plausible inferences that can be drawn from the complaint and publicly available evidence clearly imply further discovery is of little value. Accordingly, the Federal Rules of Civil procedure should explicitly acknowledge that in a small set of cases motions on the pleadings can properly function as truncated and disguised motions for summary judgment.

Managing the Intersection of Utilities Regulation and EC Competition Law

Posted by D. Daniel Sokol

Giorgio Monti of LSE's Law Department provides some thoughts on Managing the Intersection of Utilities Regulation and EC Competition Law.

ABSTRACT: Utilities regulation in the Member States is always subject to the application of EC competition law. However, this undermines the effectiveness of utilities regulation and a more flexible standard should be devised by the European Courts. The Court of First Instance has an opportunity to do so in two pending appeals where the Commission found an infringement of Article 82 EC after the actions of the dominant firm had been endorsed by the national telecommunications regulator. The grounds for affording greater latitude to regulators are threefold: first the regulator should be free to make decisions on economic grounds that support dynamic over allocative efficiency, second it should also be free to make decisions non non-economic grounds to prioritise other objectives at the expense of competition, third the present scope of EC competition law is so wide that in several instances the Commission acts in a regulatory manner, stepping over tasks best left to the regulator. No general principle is recommended to demarcate the borderline between competition law and sector regulation but a case-by-case assessment should be carried out to determine whether the application of competition law would cut across the policy choices reached by the utilities regulator, and competition law should not apply when it would harm the regulatory goals.

The Essential Facilities Doctrine

Posted by D. Daniel Sokol

Tom Cotter of the University of Minnesota Law School provides a nice summary of The Essential Facilities Doctrine in a forthcoming book chapter.

ABSTRACT: According to some courts and commentators, the essential facilities doctrine sometimes requires a monopolist to provide access to a facility that the monopolist controls and that is deemed necessary for effective competition. Although sometimes the facility is, literally, a physical facility, in principle the doctrine could apply to other types of property or inputs as well, including intangibles such as intellectual property. And while the U.S. Supreme Court has never expressly recognized the doctrine, even casting doubt in recent years on the doctrine's viability under U.S. law, the European Communities have applied a version of the doctrine in several cases, including most recently against Microsoft. This book chapter, from a forthcoming book titled Antitrust Law and Economics (Keith N. Hylton ed., Edward Elgar Publishing 2008), provides a short overview of the essential facilities doctrine as it has evolved in the relevant caselaw and commentary. The chapter presents the leading arguments for and against the general recognition of an essential facilities doctrine; discusses some of the ongoing controversies over the doctrine's specific contours (for example, the necessity of proving the existence of two vertically-related markets); and highlights the doctrine's potential tension with intellectual property law.

The Stochastic Relationship Between Patents and Antitrust

Posted by D. Daniel Sokol

Alan Devlin of Latham & Watkins has an interesting article on The Stochastic Relationship Between Patents and Antitrust.

ABSTRACT: This article develops a novel theory by which to construe the interaction between the patent and antitrust laws. The rules of these respective disciplines are often portrayed as conflicting in means, yet harmonious in purpose. Although the intellectual property and antitrust laws have ostensibly divergent views on the role of competition, their interaction is typically limited to one of constraint. More specifically, antitrust rules have been (poorly) designed to limit the exclusivity inherent in a patent grant to the claimed invention alone. This article, however, articulates a new vision for the role of antitrust: it posits that competition rules operate as a stochastic regulator of exclusionary patent rights. The Sherman Act constrains patentees' efforts to positively transform the probabilistic nature of their intellectual property rights through contract. Yet, because the empirical calculation of optimal innovation rates is an elusive, if not Sisyphean, task, the normative desirability of the foregoing fact is abstruse. Nevertheless, policymakers' inability to pinpoint precisely the ex post rewards required to trigger ideal levels of ex ante investment need not bind our hands to inaction. If contemporary rates of innovation are deemed acceptable (even if not necessarily perfect), there may be ways to trigger equivalent levels of ex ante investment with lower social cost. In this regard, it is clear that currently enacted competition rules significantly accentuate the uncertainty surrounding patents' apotropaic effect. Concluding that contracts securing otherwise stochastic rights may be highly desirable, the article calls for the incorporation of this concern into contemporary rules, with modest substantive effect, and further advocates a qualified antitrust immunity for "gold-plated" patents if and when they are introduced.

Is Antitrust Friendly to Competition? An Endogenous Coalition Formation Approach to Collusive Cartels

Posted by D. Daniel Sokol

David Bartolini and Alberto Zazzaro (respectively Università Politecnica delle Marche and Università Politecnica delle Marche - Faculty of Economics) ask Is Antitrust Friendly to Competition? An Endogenous Coalition Formation Approach to Collusive Cartels.

ABSTRACT: A well-established result of the theory of antitrust policy is that it might be optimal to tolerate some degree of collusion among firms if the Authority in charge is constrained by limited resources and imperfect information. However, no one has ever cast doubt on the common opinion by which stricter enforcement of antitrust laws definitely makes market structure more competitive and prices lower. In this paper we challenge this presumption of effectiveness and show that the introduction of a positive (expected) antitrust fine may drive firms from partial cartels to a monopolistic cartel. Moreover, introducing uncertainty on market demand, we show that the social optimal competition policy can call for a finite or even zero antitrust penalty even if there are no enforcement costs. We first show our results in a Cournot industry with five symmetric firms and equilibrium binding agreements. Then we extend the analysis to the case of $n$ symmetric firms and a generic rule of coalition formation. Finally, we consider the case of asymmetric firms and show that our results still hold for an industry populated by one Stackelberg leader and two followers.

Efficiency Gains and Structural Remedies in Merger Control.

Posted by D. Daniel Sokol

Helder Vasconcelos of University of Bocconi - Innocenzo Gasparini Institute for Economic Research (IGIER) and Department of Economics discusses Efficiency Gains and Structural Remedies in Merger Control.

ABSTRACT: This paper studies the role of structural remedies in merger control in a Cournot setting where (endogenous) mergers are motivated by prospective efficiency gains and must be submitted to an Antitrust Authority (AA) which might require partial divestiture for approval. Both positive and negative effects of merger remedies are identified. First, structural remedies create new merger opportunities to firms. Second, when divestitures are required, the AA over-fixes, i.e., goes beyond the recreation of the level of competition that existed prior to the transaction. Finally, by insisting in over-fixing, the AA may discourage firms to look for more efficient mergers, inducing a final outcome where consumers' surplus is lower than if divestitures couldn't be required. Overall, however, structural remedies are shown to be good: consumers' surplus ex-ante is higher with than without remedies.

Looking Towards Implementation of China's Anti-Monopoly Law

Posted by D. Daniel Sokol

William Blumenthal, the FTC's General Counsel has provided a short and yet deeply anaylitcal view of the implications of the Chinese AML.  It is worth a read.

Download 20080404_aba_intl_sec_ny_re_china_aml.pdf

Fourth Annual Conference of the Global Competition Law Centre: Cartels and Enforcement Proceedings: Current Legal Issues

Posted by D. Daniel Sokol

The College of Europe's Global Competition Law Centre will hold its 4th Annual conference on June 19-20, 2008 at the Hilton Hotel, Boulevard de Waterloo 38, 1000 Brussels.

Details are available here.  Speakers include:

Jacques Bourgeois, President of the GCLC
Damien Geradin, Director of the GCLC
Neelie Kroes, European Commissioner for Competition
Richard Whish, Professor of Law, King’s College London
Edurne Navarro, Partner, Uria Menéndez
Sven Voelcker, Partner, WilmerHale LLP
Maarten Peter Schinkel, Professor of Economics, University of Amsterdam
Johan Ysewyn, Partner, Linklaters LLP
Ewoud Sakkers, Head of Unit, DG COMP, European Commission
Sir Christopher Bellamy, Legal consultant, Linklaters LLP,
Former President of the UK Competition Appeal Tribunal (CAT)
Flavio Laina, Deputy Head of Unit, DG COMP, European Commission
María Tierno Centella, Deputy Head of Unit, Cartels II, DG COMP, European Commission
Denis Waelbroeck, Partner Ashurst LLP, Professor, College of Europe
Stanisław Sołtysinski, Professor at the Law and Administration School of Poznan University, Partner SK & S Legal
Christof Swaak, Partner, Stibbe LLP
Jacques Derenne, Partner, Lovells LLP
John Temple Lang, Counsel, Cleary Gottlieb
Pierre Bos, Partner, BarentsKrans
Matthew Levitt, Partner, Lovells LLP
Rainer Becker, European Commission
Philip Collins, Chairman, Office of Fair Trading
Alan Wiseman, Partner, Howrey LLP
Till Schreiber, CDC Cartel Damage Claims Holding SA
Michel Waelbroeck, Emeritus Professor, Free University of Brussels
Floris Vogelaar, Professor of Law, University of Amsterdam
James Flynn QC, Brick Court Chambers

The Law and Economics of Monopolization Standards

Posted by D. Daniel Sokol

Keith Hylton of BU Law School brings us The Law and Economics of Monopolization Standards.

ABSTRACT:  This chapter provides a survey of the law and literature on monopolization. The focus is American law, but the issues considered are equally applicable to European law. After briefly reviewing the history of monopolization law in the U.S., I review various approaches to the legal standard for monopolization suggested in the literature. I then attempt to model monopolization standards, and assess their desirability in light of error costs.

Review of Antitrust Stories

Posted by D. Daniel Sokol

Commissioner William Kovacic of the FTC provides a Review of Antitrust Stories (Eleanor Fox and Dan Crane, editors, Foundation Press 2007). 

ABSTRACT: In the eye of the historian, published judicial decisions are badly incomplete accounts of the disputes they resolve. Some incompleteness stems from the nature of the judicial process. For example, courts have neither the means nor the duty to recount the parties’ choice of litigation strategies. Nor can a judge discuss, except by speculation, the actual effects of a decision just taken. Other gaps can result from the court’s vanity. Wanting to seem unassailably correct, judges sometimes replace the losing party’s best facts and arguments with flimsy strawmen, who collapse beneath the tribunal’s awesome logic. Some decisions give such lopsided portrayals of events that one wonders why the vanquished party ever joined the battle.

To give the fuller historical context and consequences of famous law cases, Foundation Press created its Stories series of texts. The essays assembled by Eleanor Fox and Daniel Crane in Antitrust Stories show the wisdom of theendeavor. The antitrust collection serves two valuable ends. First, the essays will help experts and novices understand the origins, disposition, and consequences of thirteen disputes that shaped the U.S. antitrust system. Foundation’s Stories series mainly targets students in U.S. law schools, but even competition policy experts who think they know it all are likely to come away from this well-conceived volume with renewed intellectual curiosity and excitement about U.S. cases they have heard about, debated, or even read dozens of times.

A second major contribution of Antitrust Stories is to inspire broader reflections about how an economic system evolves. Antitrust is a natural home for the social scientist. Extensive discussion about the influence of economics on antitrust has overshadowed the power of other social science disciplines to explain the development of law and policy. Antitrust Stories shows why literacy in history should be standard equipment for competition economists and lawyers.

This review assesses Antitrust Stories from two perspectives. It first considers how well the contributors met the editors’ challenge “to scratch the legalistic surface and unveil the human dimension” of the cases. This discussion considers the techniques the contributors have used to tell their “stories” and, more generally, discusses how one might best prepare histories of antitrust cases.

The second focus of this review is the interpretations that the authors give to their case histories. The main weakness of Antitrust Stories is the lack of a standalone, critical essay that identifies important themes that link individual chapters, assesses the soundness of the narrators’ stories, and alerts the audience to important alternative interpretations. This omission matters most for the volume’s three first-person accounts, where the narrators were contestants in the disputes. For an audience that will consist substantially of those new to the U.S. antitrust system, the volume ought to have tried harder at least to alert readers to plausible alternative interpretations that students of competition law ought to know.

Help Needed From US Academics

Posted by D. Daniel Sokol

I am organizing a signature campaign from US academics to Congress for direct appropriations for the DOJ and FTC for technical assistance (see my papers on antitrust technical assistance here and here).  There is currently movement in Congress to get direct funding this year, which would acoord with the AMC's recommentation that Congress “should provide budgetary authority, as well as appropriations, directly to the Federal Trade Commission and the Antitrust Division of the Department of Justice to provide international antitrust technical assistance.”

Email me if you want to sign on to the letters.  I attach the current draft versions.  I need a response from academics no later than June 12, 2008.

Download doj_letter.doc
Download ftc_letter.doc  

Fordham Competition Law Training Institute Programs for Summer 2008

Posted by D. Daniel Sokol

In Summer 2008, the Fordham Competition Law Training Institute Training Center will offer the following courses:

1.  Course for competition authority economists, June 16 to 20, 2008: Following the successful first course for agency economists in June 2007, FCLI will offer a one week course for economists from competition authorities. Through discussion and practical examples, the course will enable competition economists to refresh their knowledge of key economic concepts, learn about recent developments in economic theory, and develop the skills apply economic theory in case work. The course is open to competition authority economists with at least three years experience in an authority. A PhD in economics is not required.

2.  Workshop for judges, June 24 to 27, 2008: This three day workshop for judges will include a review of basic antitrust law & economics concepts as well as a discussion of issues arising in the context of judicial review and litigation in competition cases, in particular the use of economic experts and models and practices in assessing damages in competition cases. Applications from members of courts are welcome.

3.  Refresher course for experienced competition authority officials and judges, July 7 to 11, 2008: This year's refresher course will closely follow the successful programs in the previous years. The course will cover major areas of competition policy, economics and law enforcement, including basic economic concepts, horizontal agreements, mergers, single firm conduct, vertical agreements and remedies. FCLI encourages applications by competition authority officials and judges with at least three years of experience.

A highly experienced, geographically diverse faculty from competition authorities, academia and the judiciary will lead the courses and workshop, taking an interactive approach and utilizing case studies.

What's Wrong With Royalties in High Technology Industries?

Posted by D. Daniel Sokol

Damien Geradin (College of Europe, Tilburg University, and Howrey) asks What's Wrong With Royalties in High Technology Industries?

ABSTRACT: Over the past few years, there has been an unprecedented degree of interest among competition authorities, scholars, Standard-Setting Organizations (hereafter, SSOs) and trade associations with respect to the level of royalties that are charged by holders of intellectual property rights (IPRs).  For instance, in the past two years, the US Department of Justice (DoJ) granted business letter clearance to two SSOs - VITA and IEEE - to implement new IPR policies designed to control the IPR costs.  In April 2007, the DoJ and the Federal Trade Commission (FTC) jointly released a report on "Antitrust Enforcement and Intellectual Property Rights".  But the interest is not limited to the United States. The European Commission is currently investigating the compatibility of certain licensing regimes and conduct within SSOs against EC competition law.  Reflecting the debate at the policy level, scholars have produced a large body of legal and economic literature on IPR and standardization issues, including patent hold-up (where the patent holder exploits ill-gotten market power in "excessive" licensing fees) and royalty stacking (where multiple patents must be licensed and thus the royalty rates stack up to "excessive" amounts).

Against this background, this paper addresses the issue of whether something has gone wrong with royalties in high technology industries. This paper seeks to answer this question first by looking at a number of concrete scenarios where firms holding IPRs seek to obtain a return on their patent portfolios by licensing them. As will be seen, the behaviour of these firms essentially depends on whether they are vertically-integrated  or non vertically-integrated. Vertically-integrated firms engage in research and development activities, patenting at least some of their inventions, and also manufacturing products based on their own innovations and the innovations produced by others. Non vertically-integrated firms, in contrast specialize in one or the other layers of production. Pure upstream firms conduct research and development activities and patent their innovations, but they do not engage in manufacturing. Downstream firms specialize in manufacturing, but do not engage in R&D.

A Practical Guide to the Hypothetical Monopolist Test for Market Definition

Posted by D. Daniel Sokol

Malcolm Coate and Jeffrey Fischer, both of the Federal Trade Commission, provide A Practical Guide to the Hypothetical Monopolist Test for Market Definition.

ABSTRACT: The hypothetical monopolist test has been used to define antitrust markets for over 20 years. However, many of these applications occur within the enforcement agencies and thus the implementation process is not fully transparent to antitrust practitioners. This paper provides a study of 116 market definition decisions from the Federal Trade Commission's archives. We find that the agency rarely has trouble defining both product and geographic markets; in fact, the demand-side market definition process is relatively simple in over half of the cases reviewed. In many of the remaining matters, critical loss, analysis of natural experiments, and various studies of data patterns are undertaken to identify the relevant market. These studies show a remarkable variety in data requirements, sophistication, and analytical technique. Supply-side considerations affect a few markets and price discrimination supports more focused analysis in about 10 cases.

Competition Policy in Mexico and Its Implications on Economic Development

Posted by D. Daniel Sokol

Mexico's CFC has published a study on the impact of competition policy on the Mexican economy.  See here for details.

The State of Antitrust in 2008

Posted by D. Daniel Sokol

FTC Commissioner Tom Rosch recently provided The State of Antitrust in 2008 in which he discusses three recent Supreme Court decisions (Twombly, Weyerhaeuser, and Leegin) and broader themes from the Supreme Court’s recent antitrust jurisprudence.

Ninth ACCC Regulatory Conference

Posted by D. Daniel Sokol

Australia's ACCC (Australian Competition and Consumer Commission) is hosting its Ninth ACCC Regulatory Conference on July 24-25, 2008 at the Surfers Paradise Marriott Resort, Gold Coast, Queensland.

The theme for this year's conference is 'Revisiting the Rationale for Regulation'.

International Speakers include:
Professor George Yarrow, University of Oxford
Dr. Mark Jamison, University of Florida
Professor Paul Kleindorfer, Wharton School of the University of Pennsylvania
Russell Pittman, US Department of Justice
Giuseppe Nicoletti, OECD
Professor John Cubbin, City University, London
Dr. David Gabel, CEO Gabel Communications Ltd.
Dr. Stan Besen, Vice President - CRA
Phillip Dixon, Head of Competition - Ofwat
Professor Ravi Jagannathan, Kellogg School of Management, Northwestern University

Topics to be discussed include:
What do today's regulators and regulated firms need to know?
Does economics provide all the answers for regulation?
What can we learn from economic studies of regulatory policies?
Environmental issues in the regulation of energy Sources of market power in broadband
Achieving competitive outcomes in the urban water & wastewater sector
Regulating Intellectual Monopolies The CAPM - Should regulators be looking at alternatives?
The role of the courts and tribunals in providing greater guidance to regulators