Antitrust Reform: An Economic Perspective

The New Trustbusters

Antitrust and patent law have always been uneasy allies. Although both seek to encourage innovation and competition in the long run, patent law does so primarily by granting creators exclusive fiefdoms over their intellectual property, and antitrust law does so primarily by proscribing firms from anticompetitive conduct. Yet today’s world is flush with patent-rich products and industries that depend on the fruitful, simultaneous application of both of these bodies of law. Industries reliant on flourishing networks, such as those in the information and communication technology sector, are particularly influenced by the intersection of antitrust and patent law.1 Because of the central importance of well-functioning networks to these industries, many have developed standard setting organizations (“SSOs”) to designate technical standards that ensure product compatibility and interoperability between offerings from different firms. These standards incorporate many specific patents, known as standard essential patents (“SEPs”). Further, standards promulgated by SSOs oblige SEP holders to license their SEPs to implementers of the standard in a fair, reasonable, and non-discriminatory (“FRAND”) fashion.2 As a result, SEP holders and their counterparties stand, precariously, where antitrust and patent law meet. This Note will argue that an SEP holder who violates their FRAND commitments by unilaterally refusing to deal with a prospective implementer of the relevant standard should be presumed to have antitrust liability under Section 2 of the Sherman Act. In other words, such a firm should be presumed to have market power and to have participated in exclusionary conduct with anticompetitive effects. Part I will describe the landscape of standard setting, its effect on competition, and the place of antitrust and patent law in the standards landscape. Part II will explore the antitrust case law concerning refusals to deal in greater depth, paying particular attention to cases involving intellectual property and patents. Finally, Part III will build off of the previous two Parts to make and justify the argument that SEP holders should face a presumption that they have violated Section 2 of the Sherman Act when they violate their FRAND commitments by refusing to deal.

This paper focuses on two related questions at the intersection of antitrust and intellectual property law. First, under what circumstances must the holder of a patent or a copyright or the owner of a trade secret allow others to use that intellectual property? Second, under what circumstances can the holder of an intellectual property right use that right to make it difficult for another party to succeed in a related market? These questions have vexed antitrust and intellectual property scholars alike ever since the Federal Circuit ruled in 2000 that patent holders “may enforce the statutory right to exclude others from making, using, or selling the claimed invention free from liability under the antitrust laws,” a ruling that directly contradicted the Ninth Circuit ruling that antitrust liability could be imposed for almost identical conduct, depending on the motivations of the patent holder. The various proceedings in United States v. Microsoft only added fuel to the firestorm of controversy.After briefly retracing the jurisprudential path to see how this situation arose, we propose a solution that primarily involves a variation on the real property concept of adverse possession for the intellectual property space along with a slight extension of the Essential Facilities Doctrine for industries that exhibit network effects. We examine, both for firms with and without market power, how our proposal would resolve the situations presented by large fixed asset purchases, the introduction of entirely new products, and operating systems with network effects. We also demonstrate how our proposal could be applied in the European antitrust enforcement context.

Testimony on the 'State of Competition in the Digital Marketplace' before the U.S. House of Representatives, Committee on the Judiciary, Subcommittee on Antitrust, Commercial, and Administrative Law

The Omega Man or The Isolation of U.S. Antitrust Law

Although many countries have adopted antitrust statutes and have an active antitrust enforcement programme, the United States was the first to enact national legislation on monopolies and monopolization. To be sure, English common law dealt with some of these matters long before the Sherman Act was passed in 1890. But the United States was and remains a leader in antitrust legislation, enforcement and research. The discussion herein focuses on the development of antitrust economics and related changes in antitrust enforcement within the United States.

The Private Enforcement of Law

Standard-Essential Patents and Market Power

Antitrust enforcement in the United States has declined since the 1960s. Building on several new datasets, we argue that this decline did not reflect a popular demand for weaker enforcement or any other kind of democratic sanction. The decline was engineered by unelected regulators and judges who, with a few exceptions, did not express skepticism about antitrust law in confirmation hearings. We find little evidence that academic ideas played an important role in the decline of antitrust enforcement except where they coincided with the interests of big business, which appears to have exercised influence behind the scenes.

This paper, presented at the Amsterdam Center for Law and Economics (ACLE) Conference on 'Remedies and Sanctions in Competition Policy: Economic and Legal Implications of the Tendency to Criminalize Antitrust Enforcement in the EU Member States' (Amsterdam, 17-18 February 2005) addresses five questions concerning criminalization of EU antitrust enforcement: First, what do we mean by 'criminalization,' or 'criminal' enforcement (as opposed to public enforcement of a 'civil' or 'administrative' nature)? Second, is there a tendency in the EU Member States to criminalize antitrust enforcement (in comparison with US antitrust enforcement and with antitrust enforcement at the level of the EU institutions)? Third, is criminal antitrust enforcement, more specifically imprisonment, desirable (in general, irrespective of whether it takes places at the level of the Member States or of the EU institutions, or whether it is harmonized at EU level)? Fourth, is it problematic that antitrust enforcement is criminalized at the level of individual EU Member States without parallel criminalization at the level of the EU institutions or without EU harmonization? Fifth, would it be legally possible to criminalize antitrust enforcement at the level of the EU institutions, or to have EU harmonization of criminal antitrust enforcement in the Member States?

All prescriptions of behavior for individuals require enforcement. Usually the obligation to behave in a prescribed way is entered into voluntarily by explicit or implicit contract. For example, I promise to teach certain classes with designated frequency and to discuss matters which I, and possibly others, believe are relevant to the course titles. By negotiation, and in the event of its failure, by legal action, I and my employer seek to enforce the contract of employment against large departures from the promised behavior. Performance of some kinds of behavior is difficult or impossible to enforce-such as promises to be creative, noble, or steadfast in crisis-and as a result such contractual promises are either not made or enforced only when there is an uncontroversially flagrant violation. The influence upon contract, and upon economic organization generally, of the costs of enforcing various kinds of contracts has received virtually no study by economists, despite its immense potential explanatory power. When the prescribed behavior is fixed unilaterally rather than by individual agreement, we have the regulation or law, and enforcement of these unilateral rules is the subject of the present essay. Departures of actual from prescribed behavior are crimes or violations, although one could wish for a less formidable description than "criminal" to describe many of the trifling offenses or the offenses against unjust laws. My primary purpose is to construct a theory of rational enforcement, a theory which owes much to Gary Becker's major article on the subject (1968). In the conclusion the problem of explanation, as distinguished from prescription, will be commented upon.

US Antitrust Laws: A Primer

In evaluating markets with relatively homogeneous products and a fixed or slowly evolving technological base, the Antitrust Division of the Department of Justice (DoJ) often focuses on the price effects of potentially anticompetitive behavior. In dynamic industries, however, technological change and innovation receive particular attention. Innovation affects not only the prices that consumers pay for given products but, more important, the quality of products available in the marketplace. Moreover, the force of the innovation process can lead to dramatically higher-quality products being offered at lower prices to consumers in the future. An understanding of the particulars of competition in dynamic industries is, consequently, a vital part of a sound antitrust policy.

In the twenty-first century, voter choice and the broader political debate are within the reach of those that can access and channel the vast streams of user data that are generated online. How digital platforms utilize personal user data to influence the outcome of democratic processes has become a central issue that liberal democracies must confront. The paper explores whether competition law has a role to play when it comes to addressing this intersection of Big Tech, data, and democracy. It first sets out the democratic roots of competition or antitrust law in the United States and the European Union. From these, the paper deduces that competition law cannot remain inactive when it comes to maintaining a democratic society in the face of the abilities of Big Tech to influence democratic processes and outcomes. The paper then goes a step further and asks what role competition law could play in this regard. Should democratic values simply be reflected in the procedural set-up of antitrust law, or is there a role for democratic values in the substantive provisions as well? And if so, does antitrust law’s focus on keeping market power in check suffice to fulfill its role in a democratic society, or does this role require the law to specifically target antidemocratic market behavior as anticompetitive harm? In navigating these questions, the paper contributes to the ongoing debate on political antitrust and sets out an ambitious research agenda on how to carry this discussion forward.

Introduction So far, we have observed one institution's enforcement of EC competition law: the European Commission. The discussion of controversial mergers in chapters 1 and 8 provided strong indications that the institutional makeup of the Commission plays a determining role in the final outcome. To some, this is evidence of the way EC competition law is corrupted to serve illegitimate aims, while to others, the deliberative process of decision-making is justified by the way competition law is embedded within the EC Treaty and should be used to serve the wider aims of the Community, not merely to preserve consumer welfare. While the political aspect of competition decisions came under severe scrutiny in the 1990s, in particular by German scholars and practitioners, developments since that time within DG Competition (that segment of the Commission that carries out the operational aspect of law enforcement) have brought some changes to the nature of competition law enforcement. These include increased economic sophistication and growing attention to new theories of anticompetitive effects. These trends were caused by DG Competition interacting with US antitrust enforcers, and by the increased number of economists working in DG Competition, culminating in the creation of the post of Chief Competition Economist in 2003. The growth of economic analysis and expertise is analogous to that which occurred in the United States in the early 1960s, where increasing numbers of economists in the DOJ and FTC affected the direction of antitrust law, facilitating the success of the Chicago School views in the 1970s.