FTC New Office of Technology

The U.S. Federal Trade Commission has announced the creation of a Technology Office to support its work. The Press Release states:

The Federal Trade Commission today launched a new Office of Technology that will strengthen the FTC’s ability to keep pace with technological challenges in the digital marketplace by supporting the agency’s law enforcement and policy work. 

“For more than a century, the FTC has worked to keep pace with new markets and ever-changing technologies by building internal expertise," said Chair Lina M. Khan. "Our office of technology is a natural next step in ensuring we have the in-house skills needed to fully grasp evolving technologies and market trends as we continue to tackle unlawful business practices and protect Americans." 

The Office of Technology will have dedicated staff and resources, and will be headed by Chief Technology Officer Stephanie T. Nguyen.  

“I’m honored to lead the FTC’s Office of Technology at this vital time to strengthen the agency’s technical expertise and meet the quickly evolving challenges of the digital economy,” said Nguyen. “I look forward to continuing to work with the agency’s talented staff and building our team of technologists.”  

The Office of Technology will boost the FTC’s expertise to help the agency achieve its mission of protecting consumers and promoting competition. Specifically, the new office will: 

• Strengthen and support law enforcement investigations and actions: The office will support FTC investigations into business practices and the technologies underlying them. This includes helping to develop appropriate investigative techniques, assisting in the review and analysis of data and documents received in investigations, and aiding in the creation of effective remedies. 

• Advise and engage with staff and the Commission on policy and research initiatives: The office will work with FTC staff and the Commission to provide technological expertise on non-enforcement actions including 6(b) studies, reports, requests for information, policy statements, congressional briefings, and other initiatives.  

• Highlight market trends and emerging technologies that impact the FTC’s work: The office will engage with the public and external stakeholders through workshops, research conferences, and consultations and highlight key trends and best practices. 

The creation of the Office of Technology builds on the FTC’s efforts over the years to expand its in-house technological expertise, and it brings the agency in line with other leading antitrust and consumer protection enforcers around the world. 

The Commission voted 4-0 to approve the creation of the Office of Technology. 

Senator Klobuchar Introduces Legislation to Strengthen Antitrust Enforcement in United States

Former Democrat Presidential Candidate and current Senator from Minnesota, Amy Klobuchar is the new chair of the antitrust subcommittee in the U.S. Senate.  She recently introduced new legislation designed to reign in technology companies and increase competition through antitrust law.  The Press Release from her office states:

WASHINGTON – U.S. Senator Amy Klobuchar (D-MN), the lead Democrat on the Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights, introduced sweeping new legislation today to reinvigorate America’s antitrust laws and restore competition to American markets. The Competition and Antitrust Law Enforcement Reform Act will give federal enforcers the resources they need to do their jobs, strengthen prohibitions on anticompetitive conduct and mergers, and make additional reforms to improve enforcement.

“Competition and effective antitrust enforcement are critical to protecting workers and consumers, spurring innovation, and promoting economic equity. While the United States once had some of the most effective antitrust laws in the world, our economy today faces a massive competition problem. We can no longer sweep this issue under the rug and hope our existing laws are adequate,” said Senator Klobuchar. “The Competition and Antitrust Law Enforcement Reform Act is the first step to overhauling and modernizing our laws so we can effectively promote competition and protect American consumers.”

This bill is cosponsored by Judiciary Subcommittee on Antitrust and Commerce Committee members Richard Blumenthal (D-CT), Cory Booker (D-NJ), Ed Markey (D-MA), and Brian Schatz (D-HI).

Many industries are consolidating as large mergers and acquisitions increase and big companies buy out upstart rivals before they can become a competitive threat. Harmful exclusionary practices by dominant companies – such as refusals to deal with rivals, restrictive contracting, and predatory pricing – squelch competition. U.S. antitrust law enforcement against powerful firms has lagged efforts in other developed countries, particularly when it comes to enforcement against the dominant digital platforms and other large corporations. To remedy these longstanding issues, the Competition and Antitrust Law Enforcement Reform Act will:

1. Increase Enforcement Resources

For years, enforcement budgets at the Justice Department’s Antitrust Division and Federal Trade Commission have failed to keep pace with the growth of the economy, the steady increase in merger filings, and increasing demands on the agency's resources. To enable the agencies to fulfill their missions and protect competition by bringing enforcement actions against the richest, most sophisticated companies in the world, this bill would authorize increases to each agency’s annual budget.

2. Strengthen Prohibitions Against Anticompetitive Mergers

The bill would restore the original intent of Section 7 of the Clayton Act, which was designed to stop anticompetitive mergers in order to address competitive problems in their “incipiency” before they ripened and caused harm. As the law stands today due to court decisions, enforcers can block only the most egregious acquisitions, which has allowed many harmful mergers to escape scrutiny. To remedy this, the Competition and Antitrust Law Enforcement Reform Act will:

• Update the legal standard for permissible mergers. The bill amends the Clayton Act to forbid mergers that “create an appreciable risk of materially lessening competition” rather than mergers that “substantially lessen competition,” where “materially” is defined as “more than a de minimus amount.” By adding a risk-based standard and clarifying the amount of likely harm the government must prove, enforcers can more effectively stop anticompetitive mergers that currently slip through the cracks. The bill also clarifies that mergers that create a monopsony (the power to unfairly lower the prices a company it pays or wages it offers because of lack of competition among buyers or employers) violate the statute.
• Shift the burden to the merging parties to prove their merger will not violate the law. Certain categories of mergers pose significant risks to competition, but are still difficult and costly for the government to challenge in court. For those types of mergers, the bill shifts the legal burden from the government to the merging companies, which would have to prove that their mergers do not create an appreciable risk of materially lessening competition or tend to create a monopoly or monopsony. These categories include:

1.       Mergers that significantly increase market concentration

2.       Acquisitions of competitors or nascent competitors by a dominant firm (defined a 50% market share or possession of significant market power)

3.       Mega-mergers valued at more than $5 billion

3. Prevent Harmful Dominant Firm Conduct

Decades of flawed court decisions have weakened the effectiveness of Section 2 of the Sherman Antitrust Act to prevent anticompetitive conduct by dominant companies. The bill creates a new provision under the Clayton Act to prohibit “exclusionary conduct” (conduct that materially disadvantages competitors or limits their opportunity to compete) that presents an “appreciable risk of harming competition.”

4. The legislation would establish a new, independent FTC division to conduct market studies and merger retrospectives.

5. Implement Additional Reforms to Enhance Antitrust Enforcement

The Competition and Antitrust Law Enforcement Reform Act will also implement a series of reforms to seek civil fines for antitrust violations, study the effect of past mergers, strengthen whistleblower protections, and more.

“This bill will turbocharge antitrust enforcement,” said Charlotte Slaiman, Competition Policy Director at Public Knowledge. “Much-needed updates to the Clayton Act’s merger review and exclusionary conduct provisions, along with a new office at the Federal Trade Commission and more funds for antitrust enforcers, will help level the playing field for enforcers to better protect consumers from anticompetitive abuses. I’m looking forward to continuing to work with Senator Klobuchar on this and other competition policy proposals.”

"Consumer Reports appreciates Senator Klobuchar's steady leadership in working to strengthen our antitrust laws to equip them to protect a competitive marketplace and the benefits that consumers, small businesses, and workers receive from it. This legislation gives our antitrust laws an important re-set. It ensures that harmful merger trends and exclusionary conduct can be stopped before it is too late and the harm is locked in. It extends the reach of the law so that blocking others from a fair chance to compete is a violation, even before a monopoly results. And it gives our government the enforcement authority and resources needed for effective deterrence. We look forward to working with Senator Klobuchar and others to revive our antitrust laws for the marketplace of the 21st century,” said George Slover, Senior Policy Counsel, Consumer Reports.

“Senator Klobuchar’s bill puts us on a path toward tractable, actionable, achievable antitrust reform that will free consumers, workers, and businesses from the crushing economic impact of anticompetitive mergers and monopolies. This is exactly the kind of leadership we need at the moment we need it most,” said Diana L. Moss, President, American Antitrust Institute.

This legislation is endorsed by Professor Jonathan Baker of American University Washington College of Law, Professor Martin Gaynor of Carnegie Mellon University, Professor Nancy Rose of Massachusetts Institute of Technology, Professor Steven Salop of Georgetown University Law Center, Professor Fiona Scott Morton of the Yale University School of Management, and Professor Carl Shapiro of the University of California at Berkeley.

American Antitrust Institute Adds Voice to Criticism of Lax Competition Law Enforcement in the United States

The American Antitrust Institute has released a report titled, “The State of Antitrust Enforcement and Competition in the United States” (Report).  The Report takes the Trump Administration as well as prior administrations to task for a relatively low level of merger and acquisition scrutiny.  The Report also points out that numerous current policy proposals are essentially underdeveloped.  The following is a list of the major conclusions of the Report: 

•  DECLINING COMPETITION PRESENTS A POLITICAL-ECONOMIC DILEMMA IN THE U.S.: The cumulative effects of decades of lax antitrust enforcement, coupled with a step-down in enforcement under the Trump administration, poses fundamental challenges for markets and the democratic values that undergird them. Long-term inaction has compromised the effectiveness of the U.S. antitrust laws, presenting a significant political-economic dilemma around the role of antitrust in solving the broader public policy problem of declining competition.

•  ANTITRUST ENFORCEMENT HAS DECLINED UNDER THE TRUMP ADMINISTRATION: Key metrics indicate a decline in cartel enforcement under the Trump administration, as well as a falloff in second requests and merger challenges. And despite a few high-profile cases, there is no meaningful invigoration of monopolization enforcement. Recent agency actions to block some mergers involving highly concentrated markets reflect “emergency” merger control of the most egregiously anticompetitive transactions.

•  POLICY PRIORITIES AT THE ANTITRUST AGENCIES ARE MARKEDLY DIFFERENT: The Trump DOJ has introduced major changes in government policy surrounding cartel and merger enforcement, the intersection of competition and intellectual property, and competition advocacy. Many of these policies could work against the interests of competition and consumers. The FTC has taken a more pro-active approach, with continued efforts to challenge the expansion of intellectual property to achieve anticompetitive objectives in pharmaceutical markets.

•  SHIFTS IN AGENCY ADVOCACY REFLECT MORE FEDERAL INTERVENTION BY DOJ IN PRIVATE ANTITRUST CASES: The important role of antitrust agency advocacy has shifted markedly under the Trump agencies. The FTC’s competition advocacy, embodied in comments before federal and state agencies and amicus briefs, has fallen off dramatically. In contrast, the DOJ’s competition advocacy has increased but often stakes out positions that work against the interests of competition and consumers.

•  PRIVATE ENFORCERS CAN TAKE UP SOME OF THE SLACK IN FEDERAL UNDER-ENFORCEMENT AND SPUR POLICY CHANGE, BUT THEY FACE SIGNIFICANT CHALLENGES: Key private antitrust cases have had positive impacts by obtaining compensation for victims, deterring future violations, and spurring public debate and state legislative reform. There are also opportunities for private challenges of consummated mergers that have harmed consumers and workers. But challenges remain, with tightening judicial standards for showing collusion and other impediments that make it more difficult to bring, litigate, and win cases.

•  STATE ATTORNEYS GENERAL ARE BECOMING MORE ACTIVE BUT LIMITATIONS PERSIST THAT WILL DEFINE HOW MUCH THE STATES CAN DO IN RESPONSE TO FEDERAL INACTION: State Attorneys General are stepping up efforts in response to weak federal enforcement. These include independent lawsuits to block illegal mergers and confront price fixing, a proactive stance on strengthening federal merger settlements, and investigations into the competitive practices of large digital technology companies. Resource limitations and a change in the tenor of coordination between the DOJ and the states, however, pose challenges.

•  LEGISLATIVE ANTITRUST REFORM IS NEEDED BUT PROPOSALS THUS FAR LACK A COMPREHENSIVE AND COORDINATED APPROACH: Legislative efforts to reform the antitrust laws have accelerated in the 116th Congress and are at levels not seen since the early 1990s. These include comprehensive reform proposals and narrower initiatives targeting specific antitrust issues and particularly vulnerable sectors. Legislative reform is needed to strengthen and clarify the antitrust laws, but these efforts require a coordinated response to ensure that they promote enforcement, not inadvertently weaken it or cause confusion in the courts.

• REVERSING DECLINING COMPETITION IS A PROBLEM THAT WILL REQUIRE A PUBLIC POLICY SOLUTION: Change in the way the U.S. promotes competition and protects the market system is badly needed. Strengthening antitrust to promote more vigorous enforcement of the antitrust laws is part of a broader solution that should be complemented through the use of other tools, including social and economic regulation, standard-setting and interoperability, labor policy, and intellectual property law.

The Report notably discusses the intersection of competition policy and intellectual property, particularly efforts concerning SEPs and pharmaceuticals.  On SEPs, the Report states, in part, that: 

Under the Trump administration, the DOJ has unilaterally reversed course on patent holdup issues. For example, in 2018, the Antitrust Division withdrew from its 2013 Joint Policy Statement with the Patent & Trademark Office on Remedies for Standard Essential Patents (SEPs). The Policy Statement had endorsed sensible limits on court-ordered injunctive relief and the International Trade Commission’s issuance of exclusion orders, which ban imports of products into the U.S. if the products infringe a U.S. patent. It cautioned against such injunctions and orders when the alleged infringer’s products are compliant with industry standards and the patent holder has voluntarily committed to an SSO to license the patent on FRAND terms.

In December 2019, the Antitrust Division issued a new Policy Statement downplaying the concerns and ignoring the public policy justifications against injunctions and exclusion orders on products alleged to infringe SEPs.62 The new Policy Statement offers no tailored rules or meaningful guidance, and it signals increased scrutiny of SSOs rather than SEP owners. The new Policy Statement warns that such heightened scrutiny could result in an investigation or enforcement action when SSO’s take certain steps to clarify their patent policies and procedures to mitigate the risks of hold-up and disputes over licensing terms, whereas the previous statement had encouraged SSOs to make appropriate clarifications to that end.

The Report is available, here. 

US FTC and DOJ, Antitrust Division Modify Antitrust Procedures in Light of Coronavirus

The Federal Trade Commission and the U.S. Department of Justice, Antitrust Division have modified procedures for antitrust review and provided direction for businesses addressing the coronavirus.  The Press Release from the FTC states, in part: 

The Federal Trade Commission and the U.S. Department of Justice Antitrust Division today issued joint statement detailing an expedited antitrust procedure and providing guidance for collaborations of businesses working to protect the health and safety of Americans during the COVID-19 pandemic.

The expedited procedure notes, for example, that health care facilities may need to work together in providing resources and services to assist patients, consumers, and communities affected by the pandemic and its aftermath. Other businesses may need to temporarily combine production, distribution, or service networks to facilitate production and distribution of COVID-19-related supplies.

Under the expedited procedure for COVID-19 public health projects, the agencies will respond to all COVID-19-related requests, and resolve those addressing public health and safety, within seven calendar days of receiving all information necessary to vet these proposals. The statement sets out the instructions for businesses wishing to take advantage of this procedure.

The expedited COVID-19 procedure offers quicker review than existing FTC and Justice Department programs that are designed to provide guidance to businesses concerned about the legality of proposed conduct under the antitrust laws. The FTC’s “Staff Advisory Opinion” procedure and DOJ’s “Business Review Letter” procedure allow any firm, individual, or group of firms or individuals to submit a proposal to the agencies and to receive a statement advising whether the agencies would challenge the proposed activity under the antitrust laws.

“Under these extraordinary circumstances, we understand that businesses collaborating on public health initiatives may need an expedited response from U.S. antitrust authorities,” said FTC Chairman Joe Simons. “We are committed to doing everything we can to help with these efforts, while continuing to aggressively enforce the antitrust laws.”

“The Antitrust Division recognizes the importance of providing clarity expeditious clarity on any antitrust obligations in this challenging time,” said Assistant Attorney General Makan Delrahim of the Department of Justice’s Antitrust Division. “Our expedited Business Review Letter procedure will help facilitate businesses that want to work quickly to address the urgent public health and economic needs associated with COVID 19.”

The antitrust laws accommodate procompetitive collaborations among competitors. In their joint statement, the FTC and the Department of Justice listed several types of collaborative activities designed to improve the health and safety response to the pandemic that would likely be consistent with the antitrust laws.

At the same time, the agencies also stressed that they will not hesitate to hold accountable those who try to use the pandemic to engage in antitrust violations. In addition, the Department of Justice will criminally prosecute conduct such as price-fixing, bid-rigging, or market allocation.

The expedited procedure requires that an applicant provide the FTC or Justice Department a written description of the proposal, including the parties that would be involved in the effort or activity, and the name and contact information of a person from whom the agencies could obtain additional information. This expedited procedure is for use solely for coronavirus-related public health efforts and may be invoked at the option of the requestor, in lieu of the agencies’ standard procedures for handling requests for advice.

The agencies also committed to expedite requests under the National Cooperative Research and Production Act for flexible treatment of certain standard development organizations and joint ventures. 

The statement also notes that the FTC and the Justice Department are addressing actions by individuals and businesses to take advantage of COVID-19 through other fraudulent and illegal schemes. Anyone with information or concerns about this sort of conduct, or other COVID-19-related complaints, should contact the FTC’s Consumer Response Center at 1-877-382-4357 or the National Center for Disaster Fraud Hotline (1-866-720-5721) or e-mail (disaster@leo.gov). More information on the FTC’s guidance on potential fraud, deceptive practices, and scams is available here, and to report a complaint go to www.ftc.gov/complaint.

U.S. House Subcommittee Hears Complaints About Purported Anticompetitive Conduct by Platforms

The U.S. House Subcommittee on Antitrust, Commercial and Administrative Law recently held hearings concerning potential anticompetitive conduct by platforms against smaller companies who may offer services or products on those platforms at University of Colorado Law School.  Notably, the congressmen on the committee were all concerned about the activities of the platforms.  Here are a few of the notable points: 1) the relatively small companies do not spend a lot of money on lobbying; 2) some of the companies are very concerned about having to purchase their trademarks as keywords from Google; 3) there is concern about bargaining or the lack of it with Amazon; 4) there are concerns about the size of Apple’s cut of App Store sales as well as Apple using control over iOS to disfavor competitors of its own products; 5) there is potentially predatory pricing being conducted by some platforms; 6) there is fear that the platforms are using data about a smaller companies’ products or services created when they use the platform against them to compete; 7) none of the smaller companies could very clearly answer the question of whether the complained about conduct violated current antitrust law; and 8) the congressmen repeatedly thanked the smaller companies for their courage for speaking out against the platforms.  There was some discussion concerning intellectual property.  Sonos, the speaker company, noted that a platform was involved in “efficient infringement” against them.  The smaller companies also complained about the cost of litigating against the platforms and how it diverts funding from research and development.  At least one company noted that having the government pursue these cases would help them because of the cost.  As previously mentioned, there was also concern expressed about trademarks, and additionally, how platforms use similar trade dress to competitor's trade dress on products that platforms use to compete against smaller competitors.  Counterfeiting was also a concern. The full hearings can be found, here. 

Reinvigorating Competition Law in the United States: A Path Forward?

In late 2018, Professor Timothy Wu at Columbia University Law School published a short, readable and nicely priced book at about 140 pages titled, “The Curse of Bigness: Antitrust in the Gilded Age.”  This ambitious and accessible book lays out and defends the general thesis that American antitrust law (competition law) has gone astray.  He essentially attacks the narrow focus on the consumer welfare theory of antitrust law as failing to completely encompass other values, particularly related to the protection of democracy from influence by a concentrated private sector relying on the work of U.S. Supreme Court Justice Lewis Brandeis.  He traces the history of antitrust enforcement in the United States from the “Gilded Age” and notes that the remedy of breakup of concentration has historically led to more innovation, and an important harm of the narrow Chicago/Harvard School approach to antitrust is a failure to find actionable concentration enough and that “bigness” in and of itself is harmful.  Indeed, concentration leads to those benefiting from it doing whatever necessary to preserve their position, which includes suppression of innovation through raising rival costs, mergers and cloning, and exercising control over government.  Cloning is essentially copying of the features of smaller rivals, particularly in the technology/internet industry.  It seems that intellectual property protection may provide some cover for small firms from abuse.  He points to the lack of enforcement by the George W. Bush administration (and also points the finger at the Obama Administration, but gives them the excuse of the background of a judiciary that has adopted the Chicago/Harvard School approach--perhaps the W Bush Administration may benefit a bit from the same excuse) that led to a significant amount of concentration across several industries.  Interestingly, the Trump administration recently approved the Sprint/T-Mobile merger. 


Professor Wu is particularly concerned about the technology sector and specifically critiques the behavior of Google, Facebook and Amazon.  Professor Wu points to several policy prescriptions: 1) reinvigorate merger review, including “a simple but per se ban on mergers that reduce the number of major firms to less than four”; 2) "democratization of the merger process"; 3) taking on big cases (he lauds the EU's approach); 4) using the breakup remedy; 5) adopting a “market investigation” practice similar to the United Kingdom; and 6) essentially “abandoning ‘consumer welfare’ as the lodestone of antitrust law” and adopting a standard based on the “protection of competition” that is process oriented in nature.  Notably, other additional values worth protecting could include individual privacy and even more difficult to cabin in today's age--national security.  Professor Wu’s book lays out a strategy for approaching antitrust issues in the Internet Age and perhaps he will be the one to lead the next Democratic administration’s antitrust enforcement.  The book is available for purchase, here, for around $12 new and $8 used. 

U.S. Antitrust Division Chief Makan Delrahim: Making Patents Great Again?

Makan Delrahim, the leader of the Antitrust Division of the U.S. Department of Justice of the Trump Administration, has made several interesting comments concerning patents and the antitrust interface.  In a recent post on the Patently Obvious Blog, Professor Dennis Crouch discusses some debate concerning Mr. Delrahim’s positions as to when patent holders may create antitrust issues: “[Delrahim] explained that the DOJ’s historic approach has been a “one-sided focus on the hold-up issue” in ways that create a “serious threat to the innovative process.””  Professor Crouch includes links to documents concerning Delrahim’s positions as well as some responses. 

A few days ago, Mr. Delrahim spoke to the College of Europe in Brussels.  His speech is titled: “Good Times, Bad Times, Trust Will Take Us Far: Competition Enforcement and the Relationship Between Washington and Brussels.”  Most of the speech concerns the successes of cooperation between the DG Competition and the US DOJ Antitrust Division.  However, he does note some divergence in approach concerning intellectual property:

In the intellectual property area, we each have licensing guidelines; DG Competition’s guidelines were revised in 2014; ours just last year.  Both sets of guidelines highlight the benefits of robust IP protection, the importance of innovation incentives, and the risk that certain hardcore conduct poses to competition.

Intellectual property rights and innovation are topics I have cared about for a long time.  Intellectual property rights are enshrined in the U.S. Constitution, and I believe that strong protection of these rights drives innovation incentives, which in turn drive a successful economy.

A deep-seated concern for protecting incentives to innovate underlies many of the changes in U.S. antitrust law over the past several decades, and it is no coincidence that we have enjoyed a period of staggering innovation over that time.  But in an ever-evolving marketplace, success is not a static outcome.  We must continue to think critically about how best to calibrate our enforcement decisions to promote competition and innovation.

As you may know from what I have said publicly, a particular concern of mine is how we use antitrust enforcement in the context of standard setting.  In particular, I worry that we have strayed too far in the direction of accommodating the concerns of technology licensees who participate in standard setting bodies, very likely at the risk of undermining incentives for the creation of new and innovative technologies.  We continue to better our understanding of this important field.

The dueling interests of innovators and implementers always are in tension, but the tension is best resolved through free market competition and bargaining.  And that bargaining process works best when standard setting bodies respect the intellectual property rights of technology innovators, including the very important right to exclude.  To the extent a patent holder violates its commitments to a standard setting organization, remedies under contract law, rather than antitrust remedies, are more appropriate to address licensees’ concerns.

I am aware that there may be some distance between my position and that of some of my European counterparts.  If that is the case, however, we can look to our long history of effective and productive collaboration for guidance about how to proceed.  I will make every effort to work with our counterparts at DG Competition to narrow any gap between Brussels and Washington in this area.  We must maintain our close dialogue on the cutting-edge issues—innovation, intellectual property rights, and digital markets—that will occupy much of our time in the future. Innovators and consumers in both of our unions deserve nothing less.        

Mr. Delrahim also discussed the purpose of antitrust or competition law, and digital markets:

We also continue to work to narrow the differences between us on policy and substance.  Mr. Kolasky’s speech identified a “sharp divergence” between the EU approach and “the central tenet of US antitrust policy – that the antitrust laws protect competition, not competitors.”  But since those remarks, European Commissioners have again and again affirmed their commitment to the consumer welfare standard.  Starting with then-Commissioner Mario Monti and continuing with Commissioners Neelie Kroes, Joaquin Almunia, and on to Commissioner Margrethe Vestager today, Commissioners have expressed their commitment to the same consumer welfare standard that guides U.S. competition enforcement.  As Commissioner Vestager has stated, “we don’t always do things the same way.  But I think our goals are very similar: We want to protect competition and consumers.”

This is not to say that we have overcome all of the differences between us.  We still do have differences, but we talk about them regularly and respectfully, so that we can understand what motivates them.  

For example, we have not yet closed the gap in the area of unilateral conduct. European competition law still imposes a “special duty” on dominant market players, while we in the U.S. do not believe any such duty exists.

With respect to unilateral conduct, we have particular concerns in digital markets.  We continue to advocate for an evidence-based approach based on existing theories, which are sufficiently flexible to apply to new forms of doing business in the digital economy.  Where there is no demonstrable harm to competition and consumers, we are reluctant to impose special duties on digital platforms, out of our concern that special duties might stifle the very innovation that has created dynamic competition for the benefit of consumers. 

But the benefit of our close relationship with DG Competition is that we can and do talk about these differences, making progress along the way.  For example, in the ICN’s Unilateral Conduct Working Group, we spent significant time working together to develop an Analytical Framework for Unilateral Conduct.  Even though we have different views on how dominant players should be treated, we nevertheless reached agreement on a fairly significant policy document.

Will Mr. Delrahim Make Patents Great Again? 

EU Competition Commissioner Vestager is Wrong to Claim Smartphone Royalties are Excessive and Unjustified

I would like to introduce you to guest blogger Trevor Soames, a leading Brussels based antitrust lawyer with extensive experience of major high tech and IP-related investigations and litigation, having represented several major corporations in various cases over the years including Qualcomm, Nokia, Samsung and Microsoft.

The Competition Directorate of the European Commission (DG Comp) has, over the years, become increasingly interested and active in the field of SEPs. 

In a series of cases it has investigated a variety of potential competition law issues arising from the FRAND commitment, including allegations of patent ambush in Rambus, the transfer of FRAND commitments in IPCom, the risk of supposed “hold up” resulting from SEP holders seeking injunctive relief in Samsung, and in Motorola, here, and here. In addition, the European Commission investigated Qualcomm between 2005 and 2009 for, inter alia, alleged excessive pricing regarding its FRAND-committed SEPs. However, the case was terminated by the Commission when the four outstanding complaints were voluntarily withdrawn.

On 21 November 2016, the European Competition Commissioner, Margarethe Vestager, delivered a speech which indicated that the she intended to use the competition law tools at her disposal to deal more aggressively with excessive pricing cases.  She claimed smartphone royalties could be unjustifaibly high. I have already blogged, here, about her use of a defective aggregate royalty figure in support of her claims in this speech.

The following article by written by Trevor, and based on what he posted, here, comments generally on her speech, the policy issues that it raises and the wrongful identification of SEPs as being a supposed example of excessive pricing: 

"The Opening of the Door: is Excessive Pricing Control under Article 102 TFEU coming back into vogue

Commentary on Commissioner Vestager’s speech

Trevor Soames

Commissioner Vestager’s speech deliveredat Chillin’ Competition on 21 November 2016 entitled “Protecting consumers from exploitation,” spent much time discussing the application of Article 102 TFEU to excessive pricing.  A video of the speech is available on the Chillin’ Competition website, here, together with the Q&A in which the Commissioner said that she is taking a door which was almost closed and opening it a little.  The Q&A is at 14.50, my comment and question at 16.30 and the Commissioner’s response thereafter.

This short note provides a brief commentary on the subject of excessive pricing, European Commission enforcement policy, the examples cited by the Commissioner and what all this may mean for the application of Article 102 TFEU.

Excessive pricing control under Article 102 TFEU has been a fraught subject ever since the United Brands judgment of the CJEU. For our US cousins, the very idea that antitrust law could apply to excessive pricing must seem more than passing strange.  The Supreme Court made its views on the subject very clear in Justice Scalia’s Trinko opinion where he argued that the "mere possession of monopoly power, and the concomitant charging of monopoly prices, is not only not unlawful; it is an important element of the free-market system. The opportunity to charge monopoly prices – at least for a short period – is what attracts 'business acumen' in the first place; it induces risk taking that produces innovation and economic growth”.

The European Commission, to its great credit, has exercised great restraint in applying Article 102 TFEU in this area.  A critical step in this process of increasing self-restraint was the adoption of the two Helsingborg complaint rejection decisions in 2014 which, unusually for such decisions, made a finding not merely that there was no Community interest in investigating the case further but rather, and more strongly, that there was “insufficient evidence to conclude that the prices charged…are unfair/excessive and thus constitute an abuse within the meaning of article 82 of the Treaty”. The decisions are worth (re-) reading, see this and this.

Since that time there have been very few cases of excessive pricing at EU level.  Except for a handful of exceptional cases, those which have been investigated as such have been terminated by the Commission without findings of infringement. 

The European Commission emphasised its cautious and restrained approach to the application of Article 102 TFEU to alleged excessive pricing in its written submission to the OECD of 7 October 2011. The paper provides a useful summary of its enforcement policy, the rationale behind its emphasis on exclusionary practices and the problems that would be encountered in taking on excessive pricing cases.  Given that this subject has raised its head again, re-reading this carefully written paper is well worthwhile.  The position was well summarised at para. 42, as follows:

“It seems that enforcement action against excessive prices has only been considered as a last resort, in markets where high prices and high profits do not have their usual signalling function to attract entry and expansion because of very high and long lasting barriers to entry and expansion. This recognises that even though in many markets prices may be temporarily high, due to a mismatch of demand and supply or the exercise of market power, it is preferable to give market forces the time to play out and entry and expansion to take place, thereby bringing prices back to more normal levels. We have not seen enforcement activity in such markets, recognising that it would be unwise to run the risk of taking a wrong decision and furthermore spend enforcement resources on solving a problem that would solve itself over time anyway. This is so even in markets characterised by sufficient entry barriers where there can be dominant firms. Of course, it may be that a dominant firm tries to prevent this process of entry and expansion taking place by artificially raising entry barriers. However, in such a situation it is more efficient for the competition authority to tackle the raising of these entry barriers directly since this will likely amount to an exclusionary abuse. If, however, the market is characterized by such entry barriers that it is unlikely that market forces over time will bring prices down, enforcement actions aimed directly against excessive prices may indeed be appropriate.”

We have seen, however, a greater willingness by some member states with less self-control than the Commission to develop cases in this area.  We have also seen other non-EU competition jurisdictions which look to the EU for inspiration in the area of dominance control seeking to utilise their domestic Article 102 equivalents to attack what they see as excessive pricing or unfair terms.  Some of these cases have been notorious in terms of the intellectual contortions and use (sometimes misuse) of EU case law relied on to reach their conclusions.

Although the Commissioner identified a few limits to the application of excessive pricing control, she gave a clear message.  Namely, that the European Commission is open for business in this area in a manner not seen for many years.  In response to my question, she confirmed that a door which had been almost closed has now been opened, at least to some degree.   She said “...we’re still bound to come across cases where competition hasn’t been enough to provide a real choice. Where dominant businesses are exploiting their customers, by charging excessive prices or imposing unfair terms”.  Rightly, she emphasised caution saying that “we have to be careful in the way we deal with those situations. Because sometimes, a company is dominant simply because it’s better than its competitors. And when that’s the case, it’s only fair that it should get the rewards of its efforts. But we also need to be careful that we don’t end up with competition authorities taking the place of the market. The last thing we should be doing is to set ourselves up as a regulator, deciding on the right price”.

However, “there can still be times when we need to intervene”.  In closing the Commissioner said that “we need to act carefully when we deal with excessive prices. The best defence against exploitation remains the ability to walk away. So, we can often protect consumers just by stopping powerful companies from driving their rivals out of the market.  But we still have the option of acting directly against excessive prices.  Because we have a responsibility to the public. And we should be willing to use every means we have to fulfil that responsibility”.

For me, it is those last two sentences that gave some cause for concern and indicated that the door was being opened, as was indeed confirmed.

Now, it is true, that the Commissioner stated that excessive pricing control should only be used where there is no ability for the customer/consumer to “walk away”. The product or service being charged for does not need to be an essential facility in the manner normally used, namely whether access to the deemed essential facility is denied to a competitor, or is granted only on discriminatory terms, but rather whether the customer/consumer has a choice (note that the Commissioner didn’t use the essential facility concept, the application of which has been limited after the Oscar Bronner case).  Furthermore, the Commissioner says that although there may be future cases where alleged excessive pricing may be investigated and, indeed, decided upon, the Commission would not be a price regulator and would not decide on “the right price”.  That is all very well and it sounds comforting, but what it really means is that the Commission would merely decide that the price charged was unlawful, explain the grounds on which it so held and no doubt order that the price be adjusted so that it was reasonable. Little guidance may be provided by the Commission as to what it considers reasonable in the particular circumstances and if the allegedly dominant company gets its pricing wrong, it will be fined for having failed to comply with the Commission’s order without being able to seek clarity from a Court.  So, although the Commission would indeed not “set” the price, its actions would undoubtedly change the pricing levels set and the impugned and allegedly company would need to be cautious. De facto the Commission will therefore be a price regulator, whatever it may claim.

Let us turn (briefly) to the three examples of excessive pricing identified by the Commissioner, Gazprom, pharmaceuticals and Standard Essential Patents (SEPs):

• Gazprom: this is not a pure excessive pricing case at all and seems a strange example to choose.  The Commission’s allegations revolve around a series of exclusionary behaviours, territorial restrictions and market partitioning including export bans, destination clauses and measures that prevent the cross-border flow of gas, the combination of which has resulted in higher gas prices and the segmentation of gas markets along national borders.
  
• Pharmaceuticals: the Commissioner seemed to be focussed on a number of examples of off-patent drugs having been subject to significant price increases.  A notorious example was the 5,000% price increase implemented by Turing Pharmaceuticals and its CEO Martin Shkreli for Daraprim, a 62 year old medication. In addition there have been a number of NCA investigations as referred to by the Commissioner, including the recent Article 102 TFEU decision of the UK CMA regarding alleged excessive pricing for phenytoin sodium capsules (Pfizer/Flynn). These cases warrant a lengthier discussion than is possible in this note, but there are special circumstances at play in the pharmaceutical sector due to Government imposed price regulation that create a somewhat unique environment within which competition law operates.  One might have thought, along the lines of Justice Scalia’s reasoning in Trinko, that an off-patent drug which is subject to a substantial price increase would incentivise new entrants to generate competitive alternatives.  This would be consistent with para. 61 of the European Commission’s 2011 OECD paper where it stated that “enforcement against excessive prices is generally only contemplated in markets with an entrenched dominant position where entry and expansion of competitors cannot be expected to ensure effective competition in the foreseeable future, that is markets where high prices and high profits do not have their usual signalling function to attract entry and expansion.”
  
• SEPs: this is yet another strange example to have been included in the Commissioner’s list as it relates to an alleged phenomenon (royalty stacking and hold-up) for which there is no evidence at all.  Unlike the Gazprom and pharmaceutical examples cited by the Commissioner, the claimed phenomenon is entirely hypothetical and there is no empirical evidence that shows or proves that it exists.  The speech claims that a recent study “shows that 120 dollars of the cost of each smartphone comes from paying royalties for the patents it contains.”  This is untrue.  The study cited by the Commissioner is based on a purely hypothetical analysis as its authors themselves said when they caveated the report by stating that “we estimate potential patent royalties in excess of $120 on a hypothetical $400 smartphone.” Even Professor Carl Shapiro, one of the leading proponents of the royalty stacking and hold up theory was unable in his 2015 IEEE paper to provide any such evidence, see the note I posted on this subject, here. There are multiple recent studies on this subject that elaborate on the utter and complete absence of any empirical evidence and, indeed, in the case of one important paper by Padilla and Llobet on “The Inverse Cournot Effect in Royalty Negotiations with Complementary Patents” seeks to explain, in a rigorous manner, why royalty stacking is not observed in real, as opposed to hypothetical, life. In other words, the Commissioner’s SEP example of alleged excessive pricing is no example at all.

In conclusion, I cannot recall a Competition Commissioner’s speech on excessive pricing in recent times.  It was clearly delivered for a purpose and as the Commissioner confirmed it would seem that “a door which was almost closed” has now been opened “a little”.  But what does that mean?  Some of the statements made, as well as examples used, give cause for concern.  We will have to wait and see how this policy initiative develops, both at the Commission and at member state level.  My sense is that there is a greater potential for investigation and intervention in this area than for many years and a political willingness to go into territory only rarely entered into previously.

© Trevor Soames

Avocat au Barreau de Bruxelles

Solicitor-Advocate & Barrister"

FRAND terms from a competition authority's approach: a new essay

The issue of FRAND licensing terms is critical for all IT companies involved in a standardization process but it is also a headache for competition authorities. As Mario Mariniello, Chief Competition Economist team member of EC's Directorate General for Competition, recently highlighted in an article published in OUP's Journal of Competition Law and Economics (JCLE) entitled "Fair, Reasonable and Non-discriminatory (FRAND) Terms: A Challenge for Competition Authorities", the adoption of a technology standard can raise competition concerns when the owner of the chosen technology abuses of the additional market power gained through standardization. FRAND terms can therefore be seen as a corrective device seeking a balance of interests between the licensor, who is entitled to the incremental rent "that arises from standardization with respect to the next best alternative", and the licensees, who can be considered as "locked-in" (that is forced to adopt the chosen standard).

In this article, Mario Mariniello highlights the fact that "FRAND commitments involve an incomplete contract between licensors and licensees", their implementation will therefore be necessarily controversial. From an antitrust perspective FRAND commitments are very ambiguous because there is no commonly accepted method to assess their violation. The author therefore proposes a four-pronged screening-test to assess if such a violation has occured:

If the four following conditions criteria are met:

(1) ex-ante, a credible alternative to the adopted technology exists;
(2) ex-ante, prospective licensees cannot reasonably anticipate the licensor’s ex-post requests;
(3) ex-post, the licensor requests worse licensing conditions than ex-ante; and
(4) ex-post, the licensee is locked into the technology,

then a FRAND violation could have occurred and a competition authority needs to investigate and decide whether the terms and conditions of the defendant are fair, reasonable and non-discriminatory, which involves "an objective valuation of the royalty rate that patent holder would have been to charge if the standard did not increase its market power, subject to the broader context of the license contract."

An access to this very interesting analysis can be found here.

When Nostagia Meets Business Reality: The Case of Baseball Cards

What happens when the nostalgia of youth is refracted by the lens of legal and commercial reality? I recently had occasion to confront this question after a London colleague drew my attention to an article that appeared on nytimes.com on 6 August. Entitled "Topps Gets Exclusive Deal with Baseball, Landing a Blow to Upper Deck," the article reported that the Topps Company will next year become the exclusive maker of trading cards for Major League Baseball in the US. As a result, Upper Deck, will apparently no longer be able to compete with Topps in this business.

For a baby boomer like me growing up in the American Midwest in the 1950s, the very mention of Topps and baseball cards evoke memories that go the very heart of my boyhood experience. In those days, Topps was the only purveyor of such cards. We would take our weekly allowance (5 or 10 cents, I don't remember), sneak out of the house, race to the corner confectionery store, and buy a new packet of cards, anchored in its wrapping by a slab of rigid chewing gum whose main role, I assume, was to protect the cards in the packet until it was opened. I don't remember how many cards there were in each packet. No matter--we would eagerly open the packet, quickly view the new the player cards, compare them with the cards already in my collection, and then plot my trading moves for the week.

For some of us, fascinated by baseball numbers, there was also the studied inspection of the back side of the card, which contained valuable information about the player not readily accessible in other fashion. (I have heard that Ben Bernanke, the Chairman of the US Fed, when not trying to save the financial world, is a great fan of baseball statistics. Perhaps this interest also was fuelled by his boyhood exposure to baseball cards).

Another Satisfied Baseball Card Fan?

The frequency of the cards available in the packages was apparently rationed by Topps so that in the aggregate there were a small number of cards containing the genuine superstars (such as Mickey Mantle, Willie Mays, and Stan Musial, if the reader remembers), and a seeming endless supply of copies of forgotten players (like Willie Miranda and Hal Griggs, who have been consigned to the most arcane of baseball trivia). The name of the game was to wheel and deal with your friends, to induce them to part with that card of Willie Mays for some combination of the near great, the merely average and the already forgotten.

The cards were about the thrill of the deal, the joy of having a piece of the persona of the player embodied in the card, and the challenge of committing yet another set of data to memory. Sometime during the late 1950's, my interest in baseball cards waned, and I gave no more thought to all of the time and money I had invested in maintaining my collection--no more thought, that is, until I was sent the link to the New York Times article. Nostalgia is irreparable, even it is vulnerable. Nevertheless, I decided to take a dispassionate look at the baseball card industry once again, through the prism of the deal reported between Topps and Major League Baseball. And here is what I found.

1. IP--One key to the new arrangement is exactly who has the right to use what intellectual property rights. Upper Deck is reported to have renewed its licence agreement with the Major League Baseball Players Association. Presumably, this licence is for rights of personality and the like. This means that Upper Deck can use the likeness (and name) of the ball players. (I do not know if the Players Association merely represents the rights of personality of the individual players, or somehow takes a proprietary interest, itself an interesting question.)

But this licence does grant any right in the names , logo, or other marks of the baseball teams themselves, which appears be controlled by the Major League Baseball, meaning the clubs themselves. As the article notes, it is Major League Baseball that has entered into the agreement with Topps. How this dual set of licences will work out is not clear.

2. Competition and Exclusivity--Major League Baseball has enjoyed a privileged position under the U.S. antitrust laws for nearly 90 years. The question is whether the grant of exclusivity to Topps is anticompetitive. The article points out that Major League Baseball has entered into a number of exclusivity arrangements. Thus, there is an official car (Chevrolet-- although it is a good thing that the US government bailed out GM to keep this arrangement in tact); credit card (MasterCard--does that mean I cannot use my Visa card to buy a pricey tee-shirt for my grandson?); soft drink (Pepsi--and not the other guy); and cap (New Era--does anyone really care who brands the cap?)

To the best of my knowledge, none of these exclusivity arrangements has been challenged on competition grounds. The question is whether the arrangement with Topps should be treated any differently? If nostalgia is a valid consideration, then the anwer is clearly "no". Exclusivity is what made collecting baseball cards so special 50 years ago. Exclusivity and the Golden Age seem to go hand in hand.

And so the adult in me, the IP lawyer and blogger in me, says, let's wait and see how these IP and competition issues play out, whether or not it is back to the future.

Find the Exclusivity Vectors

Oh, I almost forgot the mention: The current owner of Topps is Michael Eisner, the legendary CEO of the Disney company. What drove Eisner to acquire Topps and to seek to recapture its glory days of the past? In Eisner's own words:

"This is redirecting the entire category towards kids ....Topps has been making cards for 60 years, the last 30 in a non-exclusive world that has confusion to the kid who walks into a Wal-Mart or a hobby store. It's also difficult to promote cards as unique and original."

Eisner is about my age, I think, so I suspect his interest is a combination of nostalgia and business. At a certain level, that is not much different from mine.