If you missed the Trade Association Antitrust 101 webinar, you can view the recording here. 

We also have a number of upcoming webinars you may also find of interest:

COVID-19 Response Labor and Employment Labor and Employment Counseling and Compliance Labor and Employment LitigationTomorrow, Tuesday, July 21
Not Normal: the Challenges of a Changed Workplace
Register Here

Four months ago, the Dow was close to 30,000, employment rates were at historic highs, the coronavirus was still “novel,” and millions had not yet taken to the streets in global protests against police brutality and racial inequality. The workplace we now return to exists in this supercharged social and political climate, with new rules, laws, risks and social issues creating new and uncharted waters for employers to navigate.  Join Kelley Drye’s Labor and Employment partners Barbara HoeyMark Konkel, and Kimberly Carter as they identify risks and share pragmatic solutions to these new challenges.  Topics will include:

  • Politics, speech and activism in the workplace
  • The changing role of HR
  • What “diversity” means now
  • New employment laws

Register Here

Wednesday
Selling Online: How to Avoid Flattening the Curve of an Uptick in Website Traffic
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COVID-19 has increased the already dizzying amount of online sales, making the applicable marketing requirements increasingly important. These rules affect not just how companies advertise and promote products and services online, but also how they bill and otherwise interact with consumers before, during, and after a transaction.

This webinar will include practical tips to help companies minimize risk of enforcement and litigation and provide practical guidance. Topics include:

  • Endorsers and Influencers
  • Promotions and Pricing
  • Subscription Plans and “Free” Trials
  • Shipping and Delivery
  • Consumer Reviews and the Consumer Review Fairness Act
  • Customer Service Considerations – how timely refunds and responsiveness can help reduce legal risks

Register Here

July 29
Cleaning Up From 2020: Guidance for Disinfectant, Germ and Virus Killing Claims
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COVID-19 has brought a proliferation of products claiming to kill or otherwise inhibit viruses, bacteria and other germs. These products, before they can be legally sold, are heavily regulated by the U.S. Environmental Protection Agency (EPA), Food and Drug Administration (FDA), and sometimes both. Major enforcement actions are pending against companies making illegal claims or selling unregistered products. Meanwhile, the FTC regulates advertising of many sanitizing products and the agency has pursued enforcement on companies that overstate their products’ germ-killing performance.

Please join us for a webinar covering the basics of germ killing and related product claims.

Discussion topics include:

  • The regulatory landscape: Who regulates what – EPA, FDA and FTC jurisdiction and requirements
  • What can you say and when can you say it
  • Potential liability and enforcement considerations
  • What to do if you receive a warning letter or other enforcement action

Anyone who is currently making or planning to make pesticide products, microbiology laboratory personnel with efficacy testing responsibilities, manufacturers of sanitizing products including lights, retailers of sanitizing products, anyone new to claims or in need of a refresher should join us for this webinar.

Register Here

July 30
California Consumer Privacy Act (CCPA) for Procrastinators: What You Need To Do Now If You Haven’t Done Anything Yet
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The coronavirus pandemic has put many things on hold, but CCPA enforcement is not one of them. The California Attorney General’s enforcement authority kicked in on July 1, 2020, and companies reportedly have begun to receive notices of alleged violation. In addition, several class actions have brought CCPA claims. Although final regulations to implement the CCPA have yet to be approved, compliance cannot wait.

If you’re not yet on the road to CCPA compliance (or would like a refresher), this webinar is for you.

We will cover:

  • Latest CCPA developments
  • Compliance strategies
  • Potential changes to the CCPA if the California Privacy Rights Act (CPRA) ballot initiative passes

Anyone who has not begun their CCPA compliance efforts or thinks they need a refresher should join us for this webinar.

Register Here

Advertising and Privacy Law Resource CenterVisit the Advertising and Privacy Law Resource Center for additional information for additional information, past webinars, and educational materials.

 

 

Trade Association Antitrust 101

Please join us on July 14 for a webinar geared toward association legal counsel, executives, marketers, staff and members, participants in association activities or attendees to association meetings.

Antitrust issues are a constant concern for trade associations and their members. Competition regulators will have associations and their members under even greater scrutiny as groups work together to address the ongoing challenges presented by COVID-19. Please join us for a webinar covering the basics of antitrust compliance for association legal and compliance counsel, executives, staff and outside advisers. This webinar is designed to help association professionals and those who attend association functions identify potential antitrust issues and provide practical guidance for effective compliance programs and mitigating risk. Finally, we will talk about how to respond to enforcement actions in the event your organization is involved in an investigation.

Discussion topics include:

  • Antitrust law basics
  • Best practices for associations and its membership
  • Effective compliance and training programs
  • Strategies for responding to warning letters or other enforcement actions

Register here

You may also want to join us for:

Product and Earnings Claims in the Time of COVID-19
On Wednesday, July 8, we will be holding a webinar for anyone who is currently making or plans to make product claims or earnings claims, anyone new to claims or in need of a refresher.

The FTC has recently sent warning letters to hundreds of companies for allegedly falsely implying that products can be used to treat, cure, mitigate, or prevent COVID-19.  The FTC has also issued warning letters for implied earnings claims connected to the pandemic, alleging that some have overpromised on the financial opportunities available and misleadingly tied them to the pandemic.  These announcements have made clear that any claim mentioning COVID-19, the pandemic, or even “these times” will be closely scrutinized.

Please join us for a webinar covering the basics of advertising product and earnings claims, and how those should be applied during the pandemic. Discussion topics include:

  • Claim Substantiation and Puffery
  • Express and Implied Product Claims
  • Express and Implied Earnings Claims
  • Enforcement Examples and Takeaways
  • Monitoring Third Parties Making Claims on Your Behalf (Endorsers, Independent Distributors)
  • What to do if you receive a warning letter or other enforcement action

Register here

Additional webinars will be announced soon.

Advertising and Privacy Law Resource Center to help your company navigate the legal landscape

The Justice Department lost another merger the other day.  This one was their challenge to Sabre’s acquisition of Farelogix.  Sabre aggregates air fares in a hosted environment and serves about 50 percent of the market.  Farelogix developed, and then open sourced, a peer-to-peer solution for the airline/travel agent industry (the “new distribution capability”), and provides consulting and coding services to airlines who want to adopt it.  The IATA owns and updates the P2P specification.  Any entity can adopt the P2P solution and do so without paying a fee.

There was evidence in Sabre’s documents that it viewed the P2P solution as a threat to its business model.  Airlines would be able to send not only fair data but their other offerings as well directly to traditional travel agents bypassing Sabre entirely.  By buying Farelogix, the progenitor of the P2P solution and an expert in integrating the P2P solution into the back office systems of the airlines, Sabre would be able to reduce or eliminate the threat from the nascent technology.  The problem is most travel agencies, including the largest ones, did not have the capacity to do the analyses their customers needed.  Their customers want to see a list of comparable flights displayed in sub-second times.  Anyone wanting to duplicate that service would have to create a massive internal analytic structure that would pull data from the airlines in real time, process it and spit it back to travel agents in a format their systems could read.  Their systems don’t do that.  They rely on Sabre to do that.  Moreover, the cost of creating that internal analytic infrastructure is enormous.  The entities that could benefit from a P2P connection to all of the airlines would be the online travel agents, the entities that already have a significant computing presence.

The real value of an open source P2P is that it harmonizes the language each of these entities speak.  This means that airlines can code their content once and everyone with the P2P capability can read it, including integrated online travel agencies and other GDSs.  In fact, with 50 percent of the market, the acquisition of Farelogix has likely tipped the market to the IATA open source standard.  This improves efficiency for everyone.  Ironically, the acquisition might actually make it easier for traditional travel agents to switch from Sabre because their plug and play reservation systems will be compatible with every GDS that adopts the P2P solution.  And coders will write to the specification because Sabre uses it.

Interestingly, Judge Stark relies heavily on American Express to hold that Sabre and Farelogix do not compete.  He claims that Amex stands for the proposition that, as a matter of law, two-sided markets compete only with two-sided markets.  That is simply not true.  A P2P solution could, if the hosted environment only offered transport, completely displace the hosted solution.  Here, as a matter of fact, the hosted solution provided analytic services a P2P solution could not duplicate without great expense for a class of consumer, so the merger would not have affected them.  The merger would similarly not affect those that had the computing capability because the solution was open sourced, and they could adopt it themselves or with the help of another computer services firm.

This case illustrates the fundamental problem with Amex.  What constitutes a relevant market is an issue of fact not law.  It is a fact whether you and your competitor agreed to the price you will charge your customers.  It is a question of law whether that agreement violates Section 1’s prohibition on price fixing conspiracies.  It is a question of fact whether a customer finds two products substitutes.  If they are close substitutes and there are no competitors, it is a question of law whether the merger of their makers constitutes a substantial lessening of competition.  The lower court in Amex determined that there were two markets—one for cardholders and one for merchants.  That was an issue of fact.  The economic evidence the defendant introduced were facts; they were not laws.  The lower court chose not to credit the economic evidence.  What the appellate court, and Justice Thomas did, was to substitute their view of the facts by claiming it was the law.  In this regard, I think Amex will have little effect on antitrust jurisprudence because fundamentally market definition is an issue of fact and nothing in Amex changes that.  It does, however, create an appellate vulnerability in Stark’s opinion.  All he had to say was “I find that the relevant market consists of providing hosted environments to certain travel agents, and for those customers a P2P solution is not a viable alternative.  I similarly find that for other classes of travel agents, a P2P solution is a viable alternative but because the P2P solution is open-sourced, there cannot be any substantial foreclosure.”  By phrasing it as a matter of law, Stark opens himself to a conclusion that by ignoring the potential P2P has for some customers, he has made a mistake of law and not fact.  Mistakes of law are much more easily overturned, except in the case of Amex, than mistakes of fact, which are given high deference.

What not to conclude from this case, however, is that it is the death of the Division’s challenges to acquisitions of mavericks.  Farelogix was not a maverick.  Sabre/Farelogix is more akin to IBM/Redhat.  Redhat had expertise in an open source product that enhanced IBM’s consulting capabilities.  It did not mean that IBM could dominate Linux operating systems by foreclosing competitors’ access to Linux.

Advertising and Privacy Law Resource Center to help your company navigate the legal landscape

On March 24, 2020, the Antitrust Division of the Justice Department and the Bureau of Competition of the Federal Trade Commission announced that they are adopting expedited processes for reviewing potential collaborations or other activities for antitrust issues in response to the COVID-19 pandemic.  The Agencies recognized the urgency of the coronavirus event and stated that they will respond to all COVID-19-related requests “within seven (7) calendar days of receiving all necessary information.”  The Agencies then provided a few examples of types of activities that it would likely bless.

The normal process for review of these types of agreements takes months, so the 7-day time frame is important.  The process, however, does not, and has never, conferred immunity.  If the activity is not problematic, the process will offer comfort that the federal antitrust agencies will likely not sue you for a particular activity.  Care should be taken when considering using one of these processes, however.  In some instances, these letters have resulted in investigations and lawsuits.  While the Justice Department has never pursued a criminal investigation as a result of a filing, there is nothing preventing them from doing so.  If you are considering pursuing a review, you should consult with antitrust counsel and thoroughly discuss the activity, the process and alternatives.

Legal Background
Generally, activities that constitute per se violations of the Sherman Act are still per se violations of the Sherman Act.  These include price fixing, bid rigging, and market and customer allocation.  Moreover, the Division’s Business Review Letter and the FTC’s Advisory Opinion processes still remain advisory.  Under those processes, the Agencies will tell you their present enforcement intent with regard to the particular activity that you have described, and only to the extent you’ve described it.  It is important to note, however, that a “clean bill of health” from the Agencies, both under the “normal” process and the expedited COVID-19 process, does not immunize the activity from suit.  Private parties and States can still pursue actions.  Indeed, there is nothing that would legally prevent the Agencies themselves from prosecuting the described behavior even if they had previously blessed it.  There is also the possibility that a rationale this administration finds compelling another might not.  And when the coronavirus threat ends, the rationale that supported the activity during the event may no longer exist.  Parties contemplating pursuing an advisory opinion from the agencies under the expedited COVID-19 process need competent antitrust counsel to evaluate the proposed activity before going to the Agencies, and to insure that it is narrowly tailored to accomplish the goal given the circumstances and that there are mechanisms in place to end the activity in the event the circumstances change.

The safest route to pursue activities that may violate the antitrust laws is to seek State Action immunity and not through the Agencies’ processes.  Under the State Action Immunity doctrine, States may pass laws that expressly exempt activities from the State and federal antitrust laws.  To qualify for that immunity, the State legislature must clearly articulate that they wish to displace competition, and the State must actively supervise the activities.  It is not enough for the State, for example, to create a COVID response team consisting of the major pharmaceutical manufacturers, and tell them that they can collectively set price on COVID medications.  To pass muster and be eligible for immunity, the State must supervise these activities.  While there are a number of ways to accomplish this, one might see a COVID board consisting of State Board of Health professionals, who allow pharmaceutical manufacturers, as well as hospitals and other care givers, to submit petitions to the board to allocate scarce supplies like medicines, and the board decides.  Of course, while this is the safest route, it is not the most expeditious.

There is also a petitioning immunity.  Consortiums of pharmaceutical manufacturers could, for example, petition the CDC as well as State boards to use their police and health and safety powers to allocate medicines, for example.  The petitioning is protected speech, and the anticompetitive action was affected by the State rather than a private party.

The Agencies Advice and Analysis
The Agencies give the following examples in their announcement.  The bold is our commentary.

  • As a general matter, the Agencies have stated that when firms collaborate on research and development this “efficiency-enhancing integration of economic activity” is typically procompetitive.  These would include joint activities to research a vaccine.
  • The Agencies have expressed that sharing technical know-how, rather than company-specific data about prices, wages, outputs, or costs, may be “necessary to achieve the procompetitive benefits of certain collaborations.” Sharing such know-how allows the parties to get their product to market quicker.  Agreeing on the price, for example, would not be necessary to achieve the benefits of the information sharing.  The parties could also contemplate R&D joint ventures that would own, collectively, the intellectual property that comes out of the joint efforts.  The joint venture could set price of the product in that situation.
  • The Agencies have explained that they will not challenge, absent extraordinary circumstances, providers’ development of suggested practice parameters – standards for patient management developed to assist providers in clinical decision making – that also may provide useful information to patients, providers, and purchasers.
  • The Agencies have also explained that most joint purchasing arrangements among healthcare providers, such as those designed to increase the efficiency of procurement and reduce transaction costs, do not raise antitrust concerns.
  • The antitrust laws would generally permit private lobbying addressed to the use of federal emergency authority, including private industry meetings with the federal government to discuss strategies on responding to COVID-19, “insofar as those activities comprise[] mere solicitation of governmental action with respect to the passage and enforcement of laws.”

The Agencies also offer some specificity:

For example, health care facilities may need to work together in providing resources and services to communities without immediate access to personal protective equipment, medical supplies, or health care.  Other businesses may need to temporarily combine production, distribution, or service networks to facilitate production and distribution of COVID-19-related supplies they may not have traditionally manufactured or distributed.  These sorts of joint efforts, limited in duration and necessary to assist patients, consumers, and communities affected by COVID-19 and its aftermath, may be a necessary response to exigent circumstances that provide Americans with products or services that might not be available otherwise.

A Hypothetical Illustration
Suppose there is a shortage of surgical masks on the East Coast.  Company A, which normally serves the East Coast, is receiving orders that far exceed its capacity to fulfill them.  Company B, which normally serves the Mountain States, has significant excess capacity.  Company B doesn’t sell into Company A’s territory because the shipping costs are prohibitively expensive.  In this hypothetical, you would expect Company A to raise price until the price increase equals the cost of shipping into Company A’s territory by entities like Company B.  It is also possible that Company A would find it profitable to buy masks from Company B and resell them.

Company A realizes that it can profitably sustain a price increase of 15% while increasing supply by 100,000 masks.  If it increased supply by 200,000 masks, it would only be able to sustain a 7% price increase.  Company A knows Company B would start shipping to customers on the East Coast at a 7% price increase.  The CEO of Company A, Bob, reads the Agencies’ COVID statement and decides that it’s an opportunity for Company A and Company B to “collaborate.”  The urgent need for masks on the East Coast is the rationale.

  • Bob calls Company B’s CEO, Jane, and asks to buy 100,000 masks at wholesale. This purchase is perfectly acceptable under standard and COVID antitrust.  It doesn’t matter under the antitrust laws that he could sell 200,000 more masks but chooses to sell only 100,000.  If the market were competitive, and there was that demand, it is likely a competitor of Company A would solicit Company B for the remaining 100,000 masks and defeat Bob’s attempted price increase. 
  • Realizing that Jane may start shipping directly, Bob tells Jane that he will pay 10% more than wholesale for the masks. He knows he will still make a profit by selling at 15% more than market.  If Jane remains free to sell to the East Coast, there is nothing wrong with paying her more for the masks.  It doesn’t matter that Bob has selected a price that would allow Jane to make more money by not selling additional product into the market.  Bob says, however, that to get the additional price concession, Jane must agree not to sell to the East Coast.  This is not justified under the circumstances because it’s limiting her ability to compete on the East Coast and would likely constitute a per se violation of the Sherman Act if Jane agrees.
  • Instead of asking her not to sell to the East Coast, Bob asks Jane to raise price to match his 15% price increase if she does sell into the market. This is also a problem.  It’s price fixing and not justified.
  • Instead of asking her to raise price, Bob suggests that they agree that they won’t raise price at all, and that he will offer her wholesale services for free if she wants to ship in bulk. This is harder.  There is significant caselaw that says agreeing to a price ceiling is just as much price fixing as price floors.  However, the price they’ve picked is significantly less than what Company A could get on the market and the deal is increasing the supply of masks to the East Coast.  This approach is carries high risk, however, and would likely result in a statement by the Agencies that it is anticompetitive.
  • A less-riskier approach might be a short-term manufacturing joint venture, where Company A contributes by contract access to its wholesale facilities at cost and Company B contributes its excess capacity at cost, and the joint venture sells the masks. This venture seems more palatable under the antitrust laws.  It’s getting a product to market quicker than would otherwise, there is shared risk and reward, and it eliminates double marginalization so consumers benefitThe short duration should also be a positive element as it is designed to address the immediate mask needs on the East Coast.  An expedited BRL would likely bless the arrangement, and limit exposure at least with regard to an investigation or suit by the federal government during the short to medium term.  The parties would want to make sure the venture dissolves when the need dissolves, or seek an opinion from counsel that the venture is on balance procompetitive.
    • As an aside, a significant portion of the analysis is whether the parties have market power. If they controlled most of the market, it would be harder but not necessarily impossible to justify the joint venture.  If the market was competitive, the agreement would likely have less effect on competition.  Company A would also not be able to sustain any price increase except at the margins.

Conclusion
Situations like COVID-19 and the potential collapse of the economy may lead many to think that “self-help” is the only way businesses can protect themselves and the people they employ.  Naked agreements to fix price, particularly of COVID-19-sensitive medical supplies, will not be blessed by the agencies, courts or private parties, and may, in some situations, constitute a crime.  The same applies to market or customer allocation agreements, where suppliers of, say, masks, decides who gets what customers.  Getting needed supplies, including a vaccine, to market quicker carries real value today, however, so if a collaboration can achieve those ends, and can be narrowly tailored to limit the adverse effect on competition, it will likely pass muster.  The area of the law is complex and not susceptible to easy answers, however, and care should be taken before leaping into anything, and in particular the antitrust review processes described above.

For other helpful information during this pandemic, visit our COVID-19 Resource Center.

UPDATE:  The FTC announced today that the deadline to file comments on the Draft Vertical Merger Guidelines has been extended to February 26.  In addition, the FTC and DOJ will host two public workshops (March 11 and 18) in Washington, DC, on the draft guidelines.

On January 10, the Federal Trade Commission and Department of Justice released a draft of their long-anticipated vertical merger guidelines and withdrew their 1984 Vertical Merger Guidelines.  Vertical mergers received a significant amount of attention during the FTC’s public hearings on competition and consumer protection policy, and FTC Chairman Joseph Simons indicated last fall that guidance was in the works.

The FTC vote to release the Draft Guidelines was 3-0-2, with Chairman Simons and Commissioners Phillips and Wilson voting in favor and Commissioners Chopra and Slaughter abstaining.  Commissioners Chopra, Slaughter, and Wilson issued separate statements.

Key Elements of the Draft Guidelines.  The Draft Guidelines state that the “principles and analytical frameworks used to assess horizontal mergers apply to vertical mergers” and recommend that practitioners read the draft guidelines “in conjunction with” the agencies’ Horizontal Merger Guidelines (“HMG”), which were last revised in 2010.  In particular, the Draft Guidelines affirm that the HMG’s approach to market definition applies to vertical mergers.

Addressing issues that are more specific to vertical mergers, the Draft Guidelines identify two main types of unilateral effects associated with vertical mergers that may harm competition:  (1) foreclosure and raising rivals’ costs (e.g., the merged firm may be able to increase prices or reduce quality to its rivals because it faces less competition); and (2) access to confidential information (e.g., the merged firm may acquire greater access to confidential information because it fills orders that had previously been split between two independent suppliers).  In addition, the Draft Guidelines identify the possibility that vertical mergers will reduce competition through coordinated effects, e.g., by increasing the merged firm’s ability to detect cheating on a tacit coordination agreement.

The Commissioners’ Statements.  In their separate statements, Commissioners Chopra and Slaughter applaud the withdrawal of the 1984 Vertical Merger Guidelines, which are “permissive” and “antiquated,” in Commissioner Chopra’s view.  Commissioner Slaughter, however, criticizes the Draft Guidelines for, among other things, proposing an “effective safe harbor for firms with less than 20 percent market share.”  Commissioner Chopra objects to issuing a draft without conducting a vertical merger retrospective and criticizes the Draft Guidelines’ use of economic models of harm that, in his view, do not take specific issues (e.g., digital market structure and IP rights into account).

Commissioner Wilson’s brief statement expresses her support for the Draft Guidelines and her expectation that commenters will provide a “great deal of input” on them.

Comments Due on February 11.  Interested parties may file comments through February 11, 2020 via email to the FTC and DOJ.  Kelley Drye Antitrust and Competition Practice Group Chair Bill MacLeod notes:  “Comments are likely to be valuable here.”

Please contact Bill MacLeod or David Evans if you have questions about the Draft Guidelines.

Elizabeth Warren is calling for aggressive enforcement of the antitrust laws. The House Judiciary is opening hearings on big tech, and the Justice Department and FTC have allocated amongst themselves responsibility for particular Big Tech companies. Pundits are saying it’s time for Big Tech to be broken up. So, should Big Tech be worried? Are we going to see an antitrust renaissance? Is Gilded Age 2.0 coming to an end? The short answer is, I doubt it.

The economic and legal theories that have enabled Big Tech to grow into the colossuses they are today are entrenched in the jurisprudence, and world views, of the courts and enforcers, and represent significant barriers to any meaningful enforcement and ultimately change. Antitrust enforcement underwent a major contraction, beginning in the 1970s as fiscal conservatives grafted onto the jurisprudence with increasing success “the Chicago school” notion that antitrust should promote economic efficiency. One of the most troubling of their successes, particularly for proponents of diluting Big Tech’s social and economic power, was Brooke Group. Brooke Group held that predation is only actionable if the plaintiff can show that the defendant has monopolized a market and can recoup the losses associated with its predation through supra-competitive pricing, in the monopolized market. Big Data platforms price significantly below cost in high-value data feeder markets, specifically for purposes of becoming the de facto provider of the underlying good. The purpose is not to extract rents in the underlying market, but to observe as much of the activities of the price insensitive purchasers, within that underlying market, as possible. Doing so allows them to develop a comprehensive understanding of those customers’ demands. Big Data then takes that individualized understanding and correlates it to others, to build a product-by-product, consumer-by-consumer demand database that can move product more quickly and more efficiently, at maximal prices. Losses in the data input markets are then recovered in the data analytics markets. Consumer ignorance of the value of their data—which is intractable because they can never know how their data augments the value of the other data within the set—enables continued predation in the underlying markets.

So long as the narrative espoused by the Agencies, Congress and the politicians remains consistent with Chicago school notions of economic efficiency, you will see no meaningful change, or outcome, in how Big Tech will be treated. This is the Grinnell narrative–that monopoly gained by virtue of superior product, business acumen or historical accident, will immunize Big Data’s behavior. If you see Google described as a “search company,” Facebook as “social media” and Amazon as an “ecommerce marketplace,” you will not be able to recognize the predation or remedy it. Google mastered search, Facebook social media and Amazon ecommerce. Their monopolies are the archetypal Grinnell monopolies. They give away valuable products in exchange for a “few bits of information” about their participants. “Zero cost” markets must benefit consumers because they are “costless.” But search, social media and ecommerce are not where the company’s value or power is nor are these “costless markets” costless. These companies provide advanced, granular data analytics about their users to the highest bidders. And they compete for data inputs. Their output is consumer data analytics that enable sellers (purchasers of the data analytics) to increase sales, and, beyond commerce, increase the penetration and effectiveness of their social and political messages. This data has value, and consumers exchange their data for their costless search, social media and ecommerce baubles, which may be nothing more than bags of beans. The companies compete for dominance in data input markets (like purchases of New York Times Best Sellers) so that they can control, and observe, as much behavior as possible by the profitable price insensitive.

A far more radical, and effective, enforcement initiative would be to add another antitrust statute. Rather than simply try to reframe existing, and entrenched, caselaw around concepts that render behaviors that have historically been illegal but now find themselves excused under rubrics of “economic efficiency,” make them illegal under statutes that contemplate more than just economic efficiency. These statutes would view substantial lessening of innovation and the marginal loss of competition (something less than a “substantial lessening of competition”) as harmful and illegal.

Absent a serious discussion about expanding the common law of antitrust enforcement and changing the narrative around Big Data beyond the current Chicago school orthodoxy, you won’t see any meaningful change in enforcement. Big Data is safe.

 

Advertising and Privacy Law Resource Center to help your company navigate the legal landscape

There seems to be a growing concern that Facebook is too big and should be broken up. Among those calling for the breakup are Elizabeth Warren, Chris Hughes and Alexandria Ocasio-Cortez. The FTC has asked Congress to pass a national privacy law to regulate the industry. While some disagree, it seems pretty clear that foreign agents were able to manipulate voters in the 2016 election. But, would breaking up Facebook put an end to foreign intervention? Would it “help” democracy?

From an antitrust standpoint, it seems unlikely that the government would succeed in an antitrust suit against Facebook. It’s unclear if Facebook is a monopoly, and even if it were, monopolies gained by virtue of superior product, business acumen or historical accident are not illegal. It’s also not clear what breaking them up would do. One of the benefits of being on Facebook is that a lot of other people also utilize the platform. If you move 1/3 of users to Facebook Blue, 1/3 to Facebook Red and 1/3 to Facebook Yellow, users would tend to migrate to the Facebook where their friends and family are, potentially recreating the “original Facebook”. From an economic perspective, the value of Facebook is not only understanding a particular user, but finding and understanding super-users, and using that information to understand other users who may not interact with the site as much. Through a repetition of behaviors, Facebook (and Amazon and Google) can get a pretty good idea of what you like to buy, when, and at what price. They can use that model to compare you to other people who have purchased similar things. They then can develop projected demand curves for whole classes of people, and use them to sell more things to you at optimized prices. Say you find a frozen mastodon with 1/3 of its’ DNA preserved. You know some things about that animal but not a lot. Now say you find 6 mastodons each with 1/3 of their DNA preserved. You know a lot more about that species as a whole even though you still have just a few data points per specimen. The value of each specimen is enhanced by the presence of the others.

If you gave each New Facebook all of the data, you’ve just tripled your problem, because each New Facebook has a complete data set and the algorithms the data built. And there doesn’t seem to be a way to “break up” the algorithms. You can get rid of a particular user’s data, but you will still have the algorithms that predict the demand for particular things that class has. Even if you could “break apart” those algorithms, it still wouldn’t prevent the New Facebooks from regenerating them as new users join and participate.

Data extraction and assimilation is not going away. In fact, the valuations the market gives to companies like Amazon but not Walmart explain this clearly. Amazon is worth so much because it can tell sellers who will buy their products, when and at what price. Moreover, the intimacy of the user experience, where the user can be served a unique website with unique pricing and product description, means that platforms like Amazon can price discriminate perfectly and instantaneously. It doesn’t have to wait for a retail window to close. It can sell a product for more to a price insensitive buyer at the same time it’s selling the same thing at a lower price to a price sensitive buyer.

It’s this hidden intimacy that makes people call Facebook “dangerous to democracy.” Democracy depends on the marketplace of ideas, where we and our putative representatives advocate for their positions openly to the citizenry, where those ideas can be assessed and challenged. People on social medial platforms tend to like others and organizations that have significance for them. When you look at a feed, you could see your church, your children’s school, your school, your trusted periodicals, your friends, and your mother. The problem is that these organizations are not curating the content you see. You see the indicia of those organizations but cannot trust that what you’re seeing is the full and complete, unexpurgated opinions of that organization, friend or family member. Facebook edits them and does not have the same incentives as the organizations. Indeed, Facebook is incentivized not to tell you anything except what you want to hear. They are incentivized to edit out anything unpleasant that might drive you from their site—it’s your behavior on their site that tells them who you and others like you are, which is what they are selling. You actually don’t see conflicting content that might challenge some of your ideas. Ultimately, they are free-riding off the goodwill your organizations have created to sell advertisements to you.

When I was a child, I remember standing at the checkout line at the grocery with my mother and reading that space aliens had landed in Utah. I was thrilled! My mother was not nearly as thrilled, and told me that space aliens had not in fact landed in Utah despite what the periodical said. I distinctly remember going home and watching the evening news for the story to prove her wrong. Shockingly, the story didn’t run. I eventually learned that there were differences in news sources, that a story from the New York Times was different than one from the Weekly World News. Learning that difference and what sources have value to you, moreover, is not a one-off event either. It’s life-long.

This analysis suggests the best response is education, in particular civics; informing the public that they are not looking at an open marketplace of ideas where all their favorite, most trusted sources are speaking freely, but a unique unshared reality curated by an organization that makes money selling you things based on what you say and do.

Having said that, more could be done to combat false identities and foreign propaganda. Presently, platforms have no incentive to stop them, as they bring more eyeballs and advertisers to sites. Perhaps requiring all paid content to be displayed on a special site, so anyone who wants to can see all of them and their sponsors. Perhaps fine the platform for allowing political advertising where the advertiser does not verifiably identify himself and his country of origin. A more fulsome disclosure about not only what data they do pull but how they massage it to make it valuable to sellers and about how they formulate the feeds people see might also help. This would also go a long way to informing users about the value of the data they are giving and relieving some of the informational asymmetry that clouds the market. The FTC’s 6(a) investigation might be expanded to platforms as well.

“Break up Facebook” is a nice rallying cry but not practical or respectful of our First Amendment. Facebook is a new way of delivering content which needs to be understood more widely.

The Academy of Motion Picture Arts & Science, the folks who bring you the Oscars, are voting on a rule change that would exclude movies by companies like Netflix from consideration. The Justice Department apparently does not take kindly to the idea. According to Variety, Makan Delrahim, Assistant Attorney General for Antitrust, wrote the Academy stating that “agreements among competitors to exclude new competitors can violate the antitrust laws when their purpose or effect is to impede competition by goods or services that consumers purchase and enjoy but which threaten the profits of incumbent firms.”

It’s a fairly aggressive position to take, particularly for a Republican administration. To win, Justice would have to show that being nominated for an Oscar has an important effect in the market. Generally, films that are nominated for Oscars do much better, so the statement is at least plausible on its face. More importantly, however, Netflix is a new and aggressive format. They could easily be described as a nascent, disruptive and maverick competitive force. If one of their films were to be nominated, it could very well have a disproportionate affect on their “legitimacy” as a substitute to in-theater films and therefore on the market for films. In addition, the film industry has plenty of reason to squash new disruptive technologies as they threaten to take consumers away. Lastly, there is a decent chance the agreement could be characterized as a per se concerted refusal to deal.

This is not a frivolous threat. If the Academy proceeds to exclude Netflix, I would anticipate not only action from Justice but from Netflix and the plaintiff’s bar. And Mr. Spielberg one of the first to be deposed.

Presidential Candidate Elizabeth Warren thinks Big Tech is too big and wants it—and, in particular, Amazon, Facebook and Google—broken up and their past mergers and acquisitions unwound. And the FTC recently announced it was forming a Task Force to look into the technology markets. There do seem to be issues with Big Tech. But is antitrust, as currently practiced, the best tool to address them?  Ms. Warren contemplates this by suggesting a new regulatory regime should be implemented to control Big Tech.  Should we treat platforms like a regulated utility?  Should we pass a new antitrust law that supplements current common law and allows for more vigorous enforcement?  Or are there tools available to modern antitrust that can address Big Tech and the issues Ms. Warren identifies?  We ask those questions and suggest some high-level responses to further the dialogue.

Continue Reading Elizabeth Warren Wants to Break Up Big Data – Could She Do It?

The Luxembourg Competition Authority recently handed down a decision that found an app-based taxi booking system, Webtaxi, was not a hardcore violation of the relevant competition law banning price fixing.  The algorithm determined the precise fare the passenger would pay for a trip.  The taxis remained competitors otherwise and the cabs on the app represented only 26 percent of the relevant taxi market.  Fares were otherwise negotiable.  The Authority found the efficiency gains material and the pricing reasonably necessary to obtain the gains.   Specifically, they found the app would reduce fares, reduce empty taxis, reduce pollution, and reduce waiting times.  They also found that the collective price setting was “necessary” to achieve these goals.   Absent the price fixing, customers would not choose the nearest taxi but the one with the best price.

This “venture” would be condemned as naked price fixing in the States. The only integration the venture offers is the app.  The only thing the app does is set the fare and allocate the customer to nearest physical taxi participating in the app.  At 26 percent of the market, the conspiracy would likely fail as consumers could switch to non-participating taxis relatively easily, but that doesn’t mean it isn’t a conspiracy of “collusion.”  The US has regularly, and for over a century, condemned price fixing agreements that set “fair prices.”

Uber and Lyft are different than Webtaxi. They are more than mere aggregations of independent drivers (notwithstanding what they may claim about the independence of their drivers and the view of the lower court).  Uber sets their prices.  Uber provides them with the technology and branding as well as a widely distributed app that is easy to use.  They provide a rating system.  And there is system competition.  Incumbent taxi companies.  Lyft. Continue Reading Webtaxi: A Wrong Decision on “Algorithmic Price Fixing”