Antitrust & Competition Policy Blog

The EU’s Accession to the ECHR and Due Process Rights in EU Competition Law Matters: Nothing New Under the Sun?

Posted by D. Daniel Sokol

Albert Sanchez Graells, University of Hull - School of Law asks The EU’s Accession to the ECHR and Due Process Rights in EU Competition Law Matters: Nothing New Under the Sun?

ABSTRACT: In light of the ongoing discussion on the potential need for reform of the enforcement system of EU competition law to make it compliant with Article 6(1) of the European Convention on Human Rights (ECHR), the aim of this paper is to contribute to the debate in a threefold manner by: i) sketching the peculiarities of the enforcement of competition law (in general, but with a focus on EU competition law), which basically derive from the complex and data intensive economic assessments required in most cases; ii) critically appraising the requirements of Article 6(1) ECHR in the field of EU competition law in view of those peculiarities; and, finally, iii) assessing the impact of those requirements in terms of the potentially necessary amendments to the EU competition law enforcement system upon the EU’s accession to the ECHR.

The basic contention of the paper is that, given the specific architecture of the EU competition law enforcement system under Regulation 1/2003 (and the domestic competition laws of Member States) — which have crystallized in a network of highly specialised and independent administrative agencies that, generally, offer procedural guarantees equivalent (or superior) to those of most tribunals in other areas of the law — and as long as an effective (soft or marginal) judicial review mechanism is available to the undertakings affected by sanctions due to EU competition law infringements, no significant changes are required in order to make the system comply with Articles 6(1) ECHR and 47 EUCFR. This position is further supported by the express normative assumption that undertakings (or companies) deserve a relatively more limited protection than individuals under the ECHR and, more specifically, under Article 6(1) ECHR — at least as regards non-core due process guarantees, such as the standard of review applicable (and as opposed to ‘core’ due process guarantees such as the presumption of innocence, the principle of equality of arms, the right to have full access to the evidence, or the right not to suffer undue delays).

Market Dominance and Quality of Search Results in the Search Engine Market

Posted by D. Daniel Sokol

Ioannis Lianos, University College London - Faculty of Laws and Evgenia Motchenkova, VU University Amsterdam - Department of Economics; TILEC describe Market Dominance and Quality of Search Results in the Search Engine Market.

ABSTRACT: We analyze a search engine market from a law and economics perspective and incorporate the choice of quality improving innovations by a search engine platform in a two-sided model of internet search engine. In the proposed framework we first discuss the legal issues the search engine market raises for antitrust policy through analysis of several types of abusive behavior by the dominant search engine. We also explore the possible consequences of monopolization of the search engine market for advertisers and users in the form of excessive pricing and deterioration of the quality of the search results. Second, in the technical analysis part we incorporate these considerations in a two-sided market model and analyze the rate of innovation, pricing, and quality choices by the dominant search engine. Our …findings show that a dominant monopoly platform results in higher prices and under-investment in quality improving innovations by a search engine relative to the social optimum. More generally, we show that monopoly is sub-optimal both in terms of harm to advertisers in the form of excessive prices, harm to users in the form of reduction in quality of search results, as well as harm to the society in the form of lower innovation rates in the industry.

IPRs, Competition and Standard Setting: in Search of a Model

Posted by D. Daniel Sokol

Valero Torti (University of Southampton) has written on IPRs, Competition and Standard Setting: in Search of a Model.

ABSTRACT: Standard setting is a field where the interaction IPRs-competition clearly comes to light. Misleading behaviours by IPRs owners taking part in standards institutes may compromise the crucial goal of standardization activities: making consumers’ lives better. These conducts may ultimately be caught by competition rules. In order to limit the risks of unfair practices, it seems crucial to strike an optimal balance between the innovators’ interests and the standards bodies’ objectives.

Language, Internet and Platform Competition: the case of Search Engine

Posted by D. Daniel Sokol

Doh-Shin Jeon, Toulouse School of Economics, Bruno Jullien, University of Toulouse and Mikhail M. Klimenko, Georgia Institute of Technology analyze Language, Internet and Platform Competition: the case of Search Engine.

ABSTRACT: The World Wide Web was originally a totally English-based medium due to its US origin. Although the presence of other languages has steadily risen, content in English is still dominant, which raises a natural question of how bilingualism of consumers of a home country affects production of web content in the home language and domestic welfare? In this paper, we address this question by studying how bilingualism affects competition between a foreign search engine and a domestic one within a small country and thereby production of home language content. We find that bilingualism unambiguously softens platform competition, which in turn can induce a reduction in home language content and in home country's welfare. In particular, it is possible that content in the foreign language crowds out so much content in the home language that consumers enjoy less content when they are bilingual than when they are monolingual.

Trade-offs between environmental regulation and market competition: airlines, emission trading systems and entry deterrence

Posted by D. Daniel Sokol

Cristina Barbot (CEFUP, Faculty of Economics of Porto), Ofelia Betancor (Universidad de Las Palmas), M. Pilar Socorro (Universidad de Las Palmas) and M. Fernanda Viecens (Universidad de San Andres) discuss Trade-offs between environmental regulation and market competition: airlines, emission trading systems and entry deterrence.

ABSTRACT: Emission trading systems (ETS) are being applied worldwide and in different economic sectors as an environmental regulatory tool that induces reductions of CO2 emissions. In Europe such a system is in place since 2005 for energy intensive installations and, since 1st January 2012, for airlines with flights arriving and departing from Community airports. The efficiency of the system should consider not only how it allows reaching an environmental goal, but also it should take into account its implications for market competition. In this work we develop a theoretical model that analyses the European ETS’s main features as devised for airlines, focusing on its effects on potential competition and entry deterrence. Contrary to other economic activities under ETS, potential competition is usual in most airline markets. Our results indicate that the share of capped allowances allocated initially for free to air operators may! be a key element in deterring or allowing entry into the market. This result may be in collision with the general European principle of promoting competition and may represent a step backwards in the construction of a single European air transport market.

Directed Search and the Bertrand Paradox

Posted by D. Daniel Sokol

Athanasios Geromichalos (Department of Economics, University of California Davis) addresses Directed Search and the Bertrand Paradox.

ABSTRACT: I study a directed search model of oligopolistic competition, extended to incorporate general capacity constraints, congestion effects, and pricing based on ex-post realized demand. I show that as long as any one of these ingredients is present, the Bertrand paradox will fail to hold. Hence, I argue that, despite the emphasis that has been placed by the literature on sellers’ capacity constraints as a resolution to the paradox, the existence of such constraints is only a subcase of a general class of environments where the paradox fails. More precisely, Bertrand’s paradox will not arise whenever the buyers’ expected utility from visiting a specific seller is decreasing in that seller’s realized demand.

Federal Trade Commission, Department of Justice to Hold Workshop on Patent Assertion Entity Activities

Posted by D. Daniel Sokol

Federal Trade Commission, Department of Justice to Hold Workshop on Patent Assertion Entity Activities.

The workshop will take place at the FTC’s satellite conference center at 601
New Jersey Ave., N.W., Washington, D.C. from 9:00 a.m. to 5:30 p.m. EST on Dec.
10, 2012. Additional participants will be added to the agenda as they are
confirmed.  Updates to the agenda will be posted on the FTC and Department of
Justice websites. The workshop will include the following panels,
presentations and confirmed participants:

9:00 a.m. – Opening Remarks:
FTC Chairman Jon Leibowitz

SESSION A: FRAMEWORK

9:15 a.m. – Lecture 1: Introduction to PAE
Activity
            Colleen Chien, Assistant
Professor of Law, Santa Clara University School of  Law

9:35 a.m. – Lecture 2: Introduction to PAE
Licensing
            Carl Shapiro, Transamerica
Professor of Business Strategy, University of  California at Berkeley, Walter A.
Hass School of Business

10:05 a.m. – Q & A with Professors Chien and Shapiro

BREAK (10:20 - 10:30 a.m.)

10:30 a.m. – Panel
1: Realities of Licensing and Litigation Practices

• Cynthia Bright, Associate General Counsel, IP Litigation and Public Policy,
  Hewlett-Packard
• Scott Burt, Vice President & Chief Intellectual Property Counsel, Mosaid
  Technologies Inc.
• John Desmarais, Partner, Desmarais LLP; Founder, Round Rock Research LLC
• Peter Detkin, Founder and Vice-Chairman, Intellectual Ventures
• Sarah Guichard, Vice President of Patent & Standards Strategy, Research
  In Motion (RIM)
• Paul Melin, Chief Intellectual Property Officer, Nokia
• Neal Rubin, Vice President Litigation, Cisco Systems Inc.
• Alan Schoenbaum, Senior Vice President, General Counsel and Secretary,
  Rackspace Hosting
• Mallun Yen, Executive Vice President, RPX Corporation

LUNCH (12:00 - 1:15 p.m.) 

1:15 p.m. – Remarks
            Stuart
Graham, Chief Economist, U.S. Patent & Trademark Office

SESSION B: POTENTIAL EFFICIENCIES AND HARMS FROM PAE ACTIVITY: 
EFFECTS ON COMPETITION AND INNOVATION

1:45 p.m. – Academic Introduction to Potential Efficiencies from PAE
Activity

Panel 1: Potential Efficiencies from PAE Activity

• Ron Epstein, CEO, Epicenter IP Group LLC
• Anne Layne-Farrar, Vice President, Antitrust & Competition Economics
  Practice, Charles River Associates

Academic Introduction to Potential Harms from PAE
Activity

Panel 2: Potential Harms from PAE Activity

• Thomas Ewing, Principal Consultant, Avancept LLC
• Robin Feldman, Professor of Law, University of California Hastings College
  of the Law

• Michael Meurer, Professor of Law and Abraham and Lillian Benton Scholar,
  Boston University School of Law
• David Schwartz, Associate Professor of Law, Illinois Institute of Technology
  Chicago-Kent College of Law

Panel 3:  Industry Reaction

BREAK (3:45 - 4:00 p.m.)

SESSION C:   HOW DOES ANTITRUST APPLY TO THE POTENTIAL EFFICIENCIES
AND HARMS GENERATED BY PAE ACTIVITY

4:00 p.m. – Academic Introduction
Phillip Malone,
Clinical Professor of Law, Harvard Law School; Clinical Co-Director and Senior
Fellow, Berkman Center for Internet & Society, Harvard Law School

4:20 p.m. – Panel Discussion

• Logan Breed, Partner, Hogan Lovells
• Susan Creighton, Partner, Wilson, Sonsini, Goodrich & Rosati PC
• Hanno Kaiser, Partner, Latham & Watkins LLP
• Hill Wellford III, Partner, Bingham McCutchen LLP

5:00 p.m. – Q & A

5:20 p.m. – Closing Remarks: Acting Assistant Attorney General for
the Antitrust Division Renata B. Hesse

Access pricing, infrastructure investment and intermodal competition

Posted by D. Daniel Sokol

Gines de Rus (Universidad de las Palmas) and M. Pilar Socorro (Universidad de las Palmas) explain Access pricing, infrastructure investment and intermodal competition.

ABSTRACT: In this paper we analyze the consequences of access pricing on infrastructure investment and intermodal competition. First, we analyze the optimal access prices to be charged to private operators. We find that the optimal access price to be charged for the use of a particular infrastructure depends on the existence of intermodal substitution or complementarity with other transport modes and infrastructures. Second, we analyze under which circumstances the investment in rail infrastructure is socially desirable both in a context with and without budget constraints. The positive net present value of the investment is not a sufficient condition. The necessary and sufficient condition implies a positive difference in social welfare for the cases in which the new infrastructure is and is not constructed.

Impacts of Patent Expiry and Regulatory Policies on Daily Cost of Pharmaceutical Treatments: OECD Countries, 2004-2010

Posted by D. Daniel Sokol

Ernst R. Berndt (MIT) and Pierre Dubois (Toulouse) explore the Impacts of Patent Expiry and Regulatory Policies on Daily Cost of Pharmaceutical Treatments: OECD Countries, 2004-2010.

ABSTRACT: Cross-country variability in regulatory frameworks, industrial policy, physician/pharmacy autonomy, brand/generic distinctions, and in the practice of medicine contributes to ambiguous interpretations of pharmaceutical cost comparisons. Here we report cross-country comparisons that: (i) focus on 11 therapeutic classes experiencing patent expiration and loss of exclusivity 2004-2010 in eight industrialized countries; (ii) convert revenues and unit sales to cost per day of treatment and number patient days treated using the World Health Organizations’ Defined Daily Dosage metrics; (iii) compare patterns in costs per day of treatment with price index measures based on average price per day of treatment for each molecule computed over all molecule versions; (iv) utilizing econometric methods, model and quantify various factors affecting variations in daily treatment price indexes such as national regulatory and reimburseme! nt policy changes, physician/pharmacy autonomy, and other factors; and (v) simulate changes in expenditures by country and therapeutic class had counterfactual policies been implemented.

When Antitrust Met Facebook

Posted by D. Daniel Sokol

Christopher S. Yoo, University of Pennsylvania Law School analyzes When Antitrust Met Facebook.

ABSTRACT: Social networks are among the most dynamic forces on the Internet, increasingly displacing search engines as the primary way that end users find content and garnering headlines for their controversial stock offerings. In what may be considered a high-technology rite of passage, social networking companies are now facing monopolization claims under the antitrust laws. This Article evaluates the likely success of these claims, identifying considerations in network economics that may mitigate a finding or market power and evaluating whether a social network’s refusal to facilitate data portability can constitute exclusionary conduct. It also analyzes two early private antitrust law cases against social networking sites: LiveUniverse v. MySpace and Facebook v. Power Ventures. These analytical considerations and early case underscore the importance of requiring that antitrust claims be asserted in terms of a coherent economic theory backed by empirical evidence. Permitting looser assertions of anticompetitive conduct risks protecting competitors instead of competition.

Modernization of the Antitrust Law in the Russian Federation

Posted by D. Daniel Sokol

Galina Ivanovna Martynenko, Plekhanov Russian University of Economics has posted Modernization of the Antitrust Law in the Russian Federation.

ABSTRACT: In this study, we empirically investigate the relationship between financial and auditing requirements, capital requirements, official supervisory power, and the likelihood of receiving a qualified audit opinion. The sample consists of 71 qualified financial statements and 17,526 unqualified ones, from 3,642 banking institutions operating in 15 old and new EU countries over the period 1999-2006. The results indicate that financial and auditing requirements have a negative influence, while supervisory power has a positive impact, on the likelihood of qualified audit opinions. Concerning capital requirements, we find that only initial stringency has an impact on audit opinions.

Renata Hesse Named Acting Head of DOJ Antitrust

Posted by D. Daniel Sokol

On Friday Eric Holder named Renata Hesse the Acting Head of DOJ Antitrust. Renata is smart and someone who in particular understands issues of technological innovation and their antitrust impact. This is an excellent interim choice until Bill Baer gets confirmed.

Competition in Information Technologies: Standards-Essential Patents, Non-Practicing Entities and FRAND Bidding

Posted by D. Daniel Sokol

Herbert J. Hovenkamp, University of Iowa - College of Law, discusses Competition in Information Technologies: Standards-Essential Patents, Non-Practicing Entities and FRAND Bidding.

ABSTRACT: Standard Setting is omnipresent in networked information technologies. Virtually every cellular phone, computer, digital camera or similar device contains technologies governed by a collaboratively developed standard. If these technologies are to perform competitively, the processes by which standards are developed and implemented must be competitive. In this case attaining competitive results requires a mixture of antitrust and non-antitrust legal tools.

FRAND refers to a firm’s ex ante commitment to make its technology available at a “fair, reasonable and nondiscriminatory royalty.” The FRAND commitment results from bidding to have one’s own technology selected as a standard. Typically the FRAND commitment is not a promise to charge any particular price, but only a price that meets FRAND expectations. This permits members of a standard setting organization (SSO) to focus on technical issues and worry about the price later. Two important questions that a FRAND commitment typically leaves open is the royalty base and the royalty rate. A strong case can be made that the base should be the smallest saleable unit containing the patented technology. While that base is not entirely free from problems, it does provide a more-or-less common currency. The FRAND obligation that the rate be nondiscriminatory typically, but not always, provides a set of yardsticks for measuring the rate.

The non-practicing entity (NPE) that voluntarily declines to participate in an SSO process should generally be held to the FRAND royalty as its measure of its damages, even though its particular patents are not FRAND-encumbered. In this case a “reasonable” royalty is the royalty that the patent holder would have obtained in the competitive market in which it might have participated. The case for limiting NPE damages in this way is strongest when the NPE had actual or objectively reasonable knowledge of the SSO process but declined to participate. The case is weakest when the SSO’s processes were not well communicated to outsiders or the NPE in question was not permitted to participate.

FRAND commitments should “run with the patent,” in the sense that owners of FRAND-encumbered patents should not be able to free them simply by assigning the patents to someone else. One fundamental principle of property law is that a property owner cannot transfer away a larger interest than it owns. The entire FRAND commitment process would be worthless if patent holders were able to evade it by the simple device of assigning encumbered patents in order to remove the encumbrance.

The question of injunctive relief is only a little more complex. A FRAND commitment is on its face an offer to license to all who employ that patent in their standards-compatible product. True, the precise royalty terms are typically not specified in advance, but that entails that the FRAND royalty will be determined by reference to common indicia such as rates paid for similar technologies in the same or perhaps another situation. Further, the FRAND commitment effectively turns the royalty issues into a breach of contract claim rather than a litigated royalty claim. Permitting the owner of a FRAND-encumbered patent to have an injunction against someone willing to pay FRAND royalties is tantamount to making the patent holder the dictator of the royalties, which once again is the same thing as no FRAND commitment at all.

Does Multimarket Contact Facilitate Tacit Collusion? Inference on Conduct Parameters in the Airline Industry

Posted by D. Daniel Sokol

Federico Ciliberto, University of Virginia - Department of Economics, Centre for Economic Policy Research (CEPR) asks Does Multimarket Contact Facilitate Tacit Collusion? Inference on Conduct Parameters in the Airline Industry.

ABSTRACT: We show that multimarket contact facilitates tacit collusion in the US airline industry using two complementary approaches. First, we show that the more extensive is the overlap in the markets that the two firms serve, i) the more firms internalize the effect of their pricing decisions on the profit of their competitors by reducing the discrepancy in their prices, and ii) the greater the rigidity of prices over time.

Next, we develop a flexible model of oligopolistic behavior, where conduct parameters are modeled as functions of multimarket contact. We find i) carriers with little multimarket contact do not cooperate in setting fares, while carriers serving many markets simultaneously sustain almost perfect coordination; ii) cross-price elasticities play a crucial role in determining the impact of multimarket contact on collusive behavior and equilibrium fares; iii) marginal changes in multimarket contact matter only at low or moderate levels of contact; iv) assuming that firms behave as Bertrand-Nash competitors leads to biased estimates of marginal costs.

Diminishing Enforcement: Negative Effects for Deterrence of Mistaken Settlements and Misguided Competition Promotion and Advocacy

Posted by D. Daniel Sokol

Francisco Marcos, Instituto de Empresa Business School addresses Diminishing Enforcement: Negative Effects for Deterrence of Mistaken Settlements and Misguided Competition Promotion and Advocacy.

ABSTRACT: Competition policy is conceived to preserve and promote free market competition. It is fleshed out through a mix of tools that are used to further consumer welfare by preserving and promoting the efficient functioning of markets. Courts, administrative authorities and governments play different roles in the execution of competition policy. However, relatively recent developments have increased the number of tools in the shed of competition law enforcement.

This paper criticizes certain uses, mistaken or misguided, of settlements, advocacy and promotion by competition authorities. These are two very different settings in which the deterrent feature of competition authorities’ enforcement actions may suffer a deathly blow. If wrongly used, both may endanger the deterrent principle upon which competition law is built. The basic point of departure is that the new tools might be diminishing the effectiveness of ‘regular’ competition law enforcement — which shall not be left in the shed to rust.

Why an Antitrust Lawyer Cares About Patent Reform

Posted by D. Daniel Sokol

David Balto explains Why an Antitrust Lawyer Cares About Patent Reform.

Seminar on Competition Law - Brasilia December 6, 2012

Posted by D. Daniel Sokol

Seminar on Competition Law - Brasilia December 6, 2012. See the link.

Download Brazil conference

Does Intellectual Property Restrict Output? An Analysis of Pharmaceutical Markets

Posted by D. Daniel Sokol

Darius Lakdawalla (USC) and Tomas Philipson (Chicago) ask Does Intellectual Property Restrict Output? An Analysis of Pharmaceutical Markets. I have known Darius since he was 19 and I was 18. He was smart then too.

ABSTRACT: Standard analysis of intellectual property focuses on the balance between incentives for research and the welfare costs of restraining output through monopoly pricing. We present evidence from the pharmaceutical industry that output often fails to rise after patent expirations. Patents restrict output by allowing monopoly pricing but may also boost output and welfare by improving incentives for marketing, a form of nonprice competition. We analyze how nonprice factors such as marketing mitigate and even offset the costs of monopoly associated with intellectual property. Empirical analysis of pharmaceutical patents suggests that, in the short run, patent expirations reduce output and consumer welfare by decreasing marketing. In the long run, patent expirations benefit consumers, but by 30 percent less than would be implied by the reduction in price alone. Focusing only on the pricing issues of intellectual property may lead to incomplete or even inaccurate conclusions for welfare.

The Competitive Impact of Hypermarket Retailers on Gasoline Prices

Posted by D. Daniel Sokol

Paul R. Zimmerman (FTC) has a really interesting article on The Competitive Impact of Hypermarket Retailers on Gasoline Prices.

ABSTRACT: Hypermarkets are large retail suppliers of general merchandise or grocery items that also sell gasoline, often at very low margins. This paper estimates the impact of hypermarkets on average state-level retail gasoline prices and margins. The empirical results indicate an economically and statistically significant price-decreasing effect of increased hypermarket competition. The estimations also suggest that refiners lower the delivered wholesale prices charged to their affiliated lessee-dealer and open-dealer stations in response to increased hypermarket competition, which in turn translates to lower retail (street) prices. The adoption of sales-below-cost laws may lessen the price-reducing effects from hypermarket competition.

Relieving Banks from Toxic or Impaired Assets: The EU State Aid Policy Framework

Posted by D. Daniel Sokol

Yassine Boudghene (DG Comp) and Stan Maes (Leiden) discuss Relieving Banks from Toxic or Impaired Assets: The EU State Aid Policy Framework.

ABSTRACT: The financial crisis has demonstrated that banks may end up holding toxic or impaired assets that harm their perceived solvency and liquidity. To address that difficulty, the European Commission has issued policy guidelines defining to what extent such banks can be relieved from impaired assets under the rules on State aids. An important question in that regard is the assessment of whether any assistance from governments may distort competition between financial institutions.