Webtaxi: A Wrong Decision on “Algorithmic Price Fixing”

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

Courts Must Only Offer “Respectful Consideration” to Foreign Governments’ Statements Interpreting Their Laws in Antitrust Cases

On June 14, 2018, in Animal Science Products, Inc. v. Hebei Welcome Pharmaceutical Co., the Supreme Court held that Courts are not obliged to accept statements from a foreign government agency on the meaning and effects of its laws but should consider other evidence in addition to such statements to judge their value.  The Court overruled a Second Circuit decision that treated the statements themselves as determinative. 

The case involves price fixing of vitamin C. A group of purchasers sued four Chinese companies in the Eastern District of New York alleging the companies had engaged in a price fixing conspiracy in violation of Section 1 of the Sherman Act.  The sellers moved to dismiss on the grounds that the government of the People’s Republic of China required them to engage in the behavior, and so it was immune under the state action and foreign sovereign compulsion doctrines and international comity.  China’s Ministry of Commerce filed an amicus stating that China required such agreements by law.  The plaintiffs argued that there was in fact no written law or regulation, that China had announced the pricing scheme would be voluntary and that China had made the opposite representations to the World Trade Organization.  The trial court did not find the statement compelling, denied the motion to dismiss and a motion for summary judgment, and the defendants ultimately lost with a jury finding them liable for $147 million in damages after trebling.  The Second Circuit reversed finding that the court should have dismissed because the statement from the Ministry of Commerce was determinative.

In deciding against the Second Circuit, the Court held that a court should “carefully consider a foreign state’s views about the meaning of its own laws” but should only offer “respectful consideration” of those views. A court needs to look at the totality of the circumstances, at the “statement’s clarity, thoroughness, and support; its context and purpose; the transparency of the foreign legal system; the role and authority  of  the  entity  or  official  offering  the statement;  and  the  statement’s  consistency  with  the  foreign government’s past positions.”

Animal Science stands for the proposition that defendants, when asserting their anticompetitive behavior was accomplished pursuant to a foreign law, have to do more than secure a statement from the government that the law in fact compels that behavior.  Defendants counsel should do diligence into the law and be prepared to support the assertion.  A statement from the government should still be useful, but one would want to consult local attorneys, hiring one perhaps as an expert, who would be able to offer an opinion that the defendants could seek to be admitted as an expert opinion.

The Bayer/Monsanto Digital Farming Licensing Remedy: Structural or Behavioral?

The European Union (“EU”) recently concluded its investigation of the Bayer Monsanto transaction.  As part of the remedy, Bayer has agreed to license to BASF its “entire global digital agriculture product portfolio and pipeline products to ensure continued competition on this emerging market.”  According to the EU’s press release, “[d]igital agriculture uses public data such as satellite pictures and weather data as well as private data collected from farmers’ fields. It applies agronomic knowledge and algorithms to that data to recommend to farmers how to best manage their fields. For example, how many seeds to use, and on how much and when to use pesticide and fertiliser. This makes digital agriculture important, not only to farmers but also to the environment.”

The use of the word “license” is important; it is not, apparently, an assignment. The reason why it’s important is because Bayer can continue to use and market the intellectual property itself.  At first blush, it would appear that the EU has created another “flavor” of the Bayer product that BASF can do with as it pleases.

At the outset, it is important to note that the intellectual property being licensed is not a patent. A patent describes clearly a particular art and grants the owner the ability to exclude others from practicing that art for a period of time.  In exchange for that exclusivity, the world gets to see the art.  A software license, or the code that executes an algorithm, is copyrightable.  But a copyright protects the expression, not the idea.  Moreover, software can be millions of lines long and will almost necessarily change over time.  People’s needs change.  Functionality can be added or deleted.  Bugs are corrected.  Software is a very dynamic product whereas the art in a patent is static.  These are important differences.

Let’s say Microsoft is convicted of monopolization of the spread sheet market, and they are required to “license” Excel to someone who can sell it in competition with Microsoft’s product. At first, the two flavors of Excel sell equally well, perhaps even the divested version sells better because the purchaser can afford to sell the product for less as its sunk costs are less.  Customers use the products and their needs change, adapt and grow.  If I have just the right to sell the software and no knowledge of how it was built, it is very difficult for me to make any meaningful changes to the platform.  Indeed, the more complicated the software is, the more likely I may destabilize it by altering it.  In effect, with just a license, my “flavor” stagnates.  It remains Windows 95 in a world where everyone is using Windows 10.

As the EU mentioned, there is a great deal of data associated with digital farming. It’s not only the weather, but the composition of a particular farmer’s soil, the atmosphere, the fertilizers, the timing of planting.  It is also the type of seeds, the genetic composition of the seeds, how the seeds react in different environments.  There is a great deal of data, and it’s not stagnant.  To be useful, BASF would need access not only to historic data, but ongoing data.  They would need access to the genetic code of the seeds, how that code interacts with the pesticide, how that pesticide is faring with the pests.  And BASF would need “honest and complete” access to that data over time.

The digital farming product therefore is tied to the actual seeds, the traits and the pesticides; needs long term relationships with farmers; and the engineers who created the code in the first place. So long as the divestiture is of all of these things, freeing BASF from any tether to Bayer, the remedy is structural.  If the license is just of the software, however, it would be an almost useless remedy because the government would have to impose a huge number of conditions on the licensing party to support the software in the hands of the competitive.  And it would be inferior.  The employees of Bayer would have little incentive to keep BASF up to date on the new and great functionality and analysis Bayer has discovered.  Such a divestiture would become a behavioral remedy in practice.  Software licenses (including big data) and patents are very different animals.  You should never assume a software license (even an “assignment”) is necessarily a remedy as effective as a patent license.

Ozzy Osbourne is an Antitrust Plaintiff

Ozzy Osbourne has filed an antitrust suit against against AEG, the operator of the O2 Arena in London and operator of the Staples Center in LA, among others.  Ozzy is alleging that AEG is illegally requiring artists perform at Staples if they want to perform at O2, the “Staples Center Commitment.”  It is a fairly straight-forward and plausible claim.  AEG has market power in large-scale venues in London and is leveraging that power to increase sales in Los Angeles to the detriment of competition in Los Angeles, where there is a lot of choice in venues.  The allegation that AEG took the time to give their scheme a name is probably the most shocking, and damming, allegation in the complaint.  And Ozzy has hired highly-regarded Dan Wall of Latham San Francisco.  This case is legitimate.

I suspect that the few of you who read, and the fewer of you who enjoy, antitrust blogs are likely not particularly adamant fans of Mr. Osbourne. He’s purportedly done some interesting things in life, and writes songs some view as a bit “dark.”  Like Mr. Crowley, a song about English occultist Aleister Crowley.  Ozzy has purportedly bit the head off a live bat in concert, a fact that people appear to bring up to him and every one of his relatives on a fairly regular basis.  He also starred in an MTV reality program called the Osbournes, which I actually enjoyed.

There is nothing particularly novel about the case—other than tying cases are increasingly difficult to prove. A positive result for Ozzy will be valuable to any artist forced to play a venue she didn’t want just to get access to a better facility.  But there aren’t many acts that can play O2 in the first place.  It’s just cool that Ozzy Osbourne is the plaintiff.

Tronox v. FTC: Ingenious or an Exercise in Futility?

In what may be the first case ever, a party to an FTC administrative merger challenge has filed suit in U.S. District Court asking the court to halt the administrative proceeding and order the FTC to pursue a preliminary injunction motion in that court. The gravamen of their argument is that the outside date for the transaction is in May, and there is no way that they could conclude an administrative trial in that amount of time.  They claim further that choice to proceed only with an administrative complaint is to delay deliberately the resolution of the suit so that the outside date passes and the deal breaks.  They “deserve their day in court.”  As a matter of substantive law, the case is unsound.  The FTC is free, within the confines of the FTC Act, to choose where it wishes to pursue an action, and this has been so for more than 100 years.  As a means to recapture some negotiating leverage from the FTC and perhaps save a few bucks, it’s probably not a bad strategy.  Perhaps the chance of a loss, however remote, and the potential “embarrassment” of dragging enforcement out “needlessly” will prompt the FTC to settle on more favorable terms.  The cost, however, is Tronox’s, and Tronox’s lawyers’, reputation at the Commission and may only prompt them to dig in their heels.

Tronox Limited and its target, Cristal, both make high purity titanium dioxide (TiO2), an input for products like paint. TiO2 makes paint white.  Tronox announced its intent to acquire Cristal in February 2017.  The FTC investigated the transaction under the HSR Act and purportedly allowed the waiting period to expire on December 1, 2017.  Tronox noted this fact in a press release suggesting it was free to close under the HSR Act.  Four days after that press release, on December 5, 2017, the FTC sued the companies alleging the combination would substantially lessen competition in the market for high purity TiO2.  In their press release announcing the suit, the FTC asserted that the waiting period had in fact expired on October 7, 2017, but the parties had entered into a timing agreement whereby they would provide the Commission 10 days’ notice of their intent to consummate.  The FTC suggested that the parties had not given adequate notice under the timing agreement.  The transaction is still under review in other suspensory jurisdictions that prevent the parties from closing globally. Continue Reading

Net Neutrality Repeal: An Implication for Content Mergers?

The FCC recently repealed the net neutrality rules.  Now your favorite ISP can charge more for better and faster access, deny you access to sites you really shouldn’t be looking at (we’re looking at you CNN), and degrade all those over-the-top services you should be getting indirectly on their platforms anyway.  One thing repealing net neutrality has done that isn’t particularly helpful to big business is make platform-content provider mergers harder.

How so, you ask.

One argument against platform-content mergers is that the platform provider can favor its own platforms for the delivery of must-have programming.  That could drive consumers away from competing platforms, distorting the market for the platform.  Justice has alleged that AT&T plans to do this very thing once it gets its hands on Time Warner.  And there are a variety of ways short of refusing to deal that a platform provider could favor its own platform.  Providing content on a delay or degrading its quality or delivery to competitors.  Engaging in price squeezes.  The net neutrality rules made doing a lot of these things at least moderately more risky.  Without them, it’s much easier for an integrated platform-content provider to engage in those behaviors.  Net neutrality therefore served as an argument that AT&T would not be able to prefer its platform and thus could not engage in the post-consummation predation Justice argues is possible.

That argument is gone now.

CNN: Is There A First Amendment Defense to an Anticompetitive Merger?

Shortly after the Justice Department’s challenge to AT&T’s acquisition of Time Warner was announced, a rumor floated that AT&T had offered to divest CNN to assuage the Division’s concerns.  The gist of the rumor was that the Division is suing to block an otherwise legitimate transaction as an act of revenge against CNN because CNN is critical of President Trump.  In addition to the President’s remarks, the believers also point to statements by the Assistant Attorney General for Antitrust who, before his nomination, said that he didn’t think there was going to be an antitrust problem with the deal.  The suit, according to the theory, is an affront to the First Amendment.

Randall Stephenson and the Division quickly denied the rumors.  They do keep circulating, however.  Partly because the President has tweeted his support of the suit.  And, more recently, because of Carter Page.  Mr. Page recently filed a pro se request for leave to file an amicus brief in the case arguing, basically, that the combination is illegal because it concentrates too much social power in the hands of a large corporation.  Mr. Page was an advisor to Mr. Trump.  Acknowledging the court has wide latitude to consider amicus, the Division did observe, in its half-page response, that the brief was not helpful suggesting it should be disregarded.

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Where to Get Bad Advice on MAP Policies

Minimum advertised price (MAP) policies are becoming more and more popular.  Especially with the rise of cutthroat competition in the online marketplace, many producers are hearing from their resellers that they want margin protection, and are getting concerned with the possible erosion of their brand equity from widespread promotion of low pricing.  Naturally, many companies have turned to consultants and the internet for information on MAP policies.

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QVC/HSN :: A Deal You Probably Weren’t Thinking About

On July 6, 2017, QVC announced its intent to acquire the remaining 62 percent of Home Shopping Network it doesn’t already own.  More so than DraftKings or Walgreens, this transaction will demonstrate whether Trump’s election has had any effect on antitrust enforcement, and should be watched carefully.  HSN and QVC are very similar, and the ability to do the deal will turn on what product market definition wins the day.  A very broad product market definition, that focuses on means of distributing products to consumers, and that includes the Internet, will suggest the transaction will have very little effect on competition, and should be allowed to close.  A narrow product market definition that focuses, say, on television shopping as a unique form of entertainment to consumers, and therefore a unique channel in which to sell products, may very well result in a challenge.

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What EU‘s Fine of Google $2.7 Means for Antitrust Exposure

The European Commission has fined Google €2.42 billion ($2.7 billion) after concluding the company had abused its dominance in search.  According to a letter from the EC announcing the results of its investigation, Google has a dominant market position in search, and the company leveraged that dominance to give itself an unfair advantage in comparison shopping search.  For example, according to the EC, when a consumer types in the name of a particular product, Google favors its own comparison shopping search results to those of its competitors.  The EC believes this process “denie[s] European consumers a genuine choice of services and the full benefits of innovation.”

The Decision

As of December 31, 2016, Google (Alphabet) had total assets of $167 billion. The fine represents slightly more than 1.6 percent of its total assets.  Perhaps more important to Google and to other companies within the reach of the EU is are the legal and behavioral aspects of the decision.  First, the decision finds that Google search is “dominant,” meaning that it is the predominant means by which consumers search the internet.  In the EU, a dominant company is required to behave in a competitively neutral fashion as between itself or its affiliated companies and its rivals.  In the States, a dominant entity (or “monopolist”) is required only not to behave in a way that unfairly maintains or expands its advantage or disadvantages competition.  What constitutes unfair in the States is more limited than in the EU.  For example, a United States monopolist is under no duty to deal with rivals except in circumstances that suggest its conduct has no legitimate purpose.  By contrast, in the EU, a dominant company is expected to be evenhanded in its dealings whether it is dealing with its rivals or with companies in other markets.

The EC is not the authority of last resort. Google can, and most likely will, appeal.  It may also decline to comply fully with the EC’s decision and force adversarial proceedings.

Significance

The case is significant for Google because the EU is demanding changes in the way Google displays its search results.  As one of the first and still leading search engines, Google’s product enjoys widespread popularity.  The EU is now telling Google that its product should give users a different experience.  And for the foreseeable future, when Google enhances the product, the changes could be second-guessed by a regulator.  While the case purportedly affects conduct only in the EU, it raises the question whether the company would or could offer different search products in the EU and the rest of the world.  For multinational companies operating online, it is difficult to avoid crossing borders.

Issues for Multinational Companies

A big question in the case is where and with whom Google competes. For shopping-related searches, Google argued that it has robust competition with Amazon, Ebay and other comparison shopping tools, and that this competition intensified even in the two years that the EC has been investigating Google.  On Amazon, a customer can locate a product quickly, pay for it using credit cards Amazon knows, and buy it from any number of different vendors.  The same is true for eBay.

Parties with significant market shares need to be vigilant about how they are perceived in the market, particularly in the EU.  While being first and foremost can be a badge of honor and an explicit business goal in the States,  a moniker of dominance can trigger significant interest in the EU.  That interest can lead to investigations and ultimately regulation.

Three main lessons:

One, consider avoiding behavior that the Europeans consider to be exclusionary in the first place. And consider the pros and cons of working with competitors that have incentives to air grievances.  That will blunt their complaints and allow you to control the narrative.

Two, consider your reputation. Discourage internal and external marketing pieces that say you are dominant.  While that might be great for securing initial funding, you can cause yourself significant problems with that puffery later on.

Three, develop solid economic evidence of real competition from platforms and other sources that aren’t “classically” within your wheelhouse. You want to be able to muster evidence that competition is coming from lots of places:  actual evidence that will be compelling to antitrust agencies worldwide.  Charge your antitrust counsel with keeping that data current.  Charge your marketing folks with tracking and memorializing that data.  And keep economists on call.  Periodic assessments of competition will be more compelling to enforcers than something put together at the last minute.

Finally, follow the enforcers and what they are saying, so you can respond to their specific theories and thoughts as they occur and before they become ingrained. We will follow them as well.

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