Here is the abstract:

The potential complementarities between antitrust and consumer protection law— collectively, “consumer law”—are well known. The rise of the newly established Consumer Financial Protection Bureau (CFPB) portends a deep rift in the intellectual infrastructure of consumer law that threatens the consumer-welfare oriented development of both bodies of law. This Feature describes the emerging paradox that rift has created: a body of consumer law at war with itself. The CFPB’s behavioral approach to consumer protection rejects revealed preference— the core economic link between consumer choice and economic welfare and the fundamental building block of the rational choice approach underlying antitrust law. This Feature analyzes the economic, legal, and political institutions underlying the potential rise of an incoherent consumer law and concludes that, unfortunately, there are several reasons to believe the intellectual rift shaping the development of antitrust and consumer protection will continue for some time.

Go read the whole thing.

Though Posner is an appeals judge with the Chicago-based 7th U.S. Circuit Court of Appeals, he likes to volunteer for trials, the Chicago Tribune reports. In a speech at the 7th Circuit Bar Association on Monday, Posner said the court-appointed experts could explain unclear scientific terms to jurors in the case.

“The idea of expert witness who are not beholden to the parties who can provide information to judges and juries on technical issues, I think is a terrific opportunity worth exploring,” Posner said.

In a March 10 court order (PDF), Posner endorsed another idea—a special blue-ribbon jury—to help decipher difficult patent claims in the case, the Patent Lawyer Blog has reported. Posner told lawyers he wanted the claim constructions to be “in ordinary English intelligible to persons having no scientific or technical background” since lay jurors would be deciding the case.

“There is no point in giving jurors stuff they won’t understand,” he wrote. “The jury (actual juries) will not consist of patent lawyers and computer scientists or engineers unless the parties stipulate to a ‘blue ribbon’ jury; I would welcome their doing so but am not optimistic.”

This is not a surprise.  Judge Posner has long advocated the use of court-appointed experts in his writing.  I suspect this move — a judge appointing an expert for the purpose of claim construction in a patent case — is not too unusual, but is receiving quite a bit of attention both because it is Judge Posner and because it is a high profile patent case.  John Wiley (my antitrust law professor) has an excellent article on the use of court appointed experts and other strategies for “taming scary patent cases.”

But this got me thinking about how relatively rare court appointment in antitrust cases is.  There are a handful of of anecdotal examples to be sure.  They are very familiar in the antitrust community — Alfred Kahn in New York v. Kraft General Foods, Carl Kaysen as law clerk in United Shoe Machinery — in part because of how rare a phenomenon it is.   A 2006 ABA Task Force memo discusses the pros and cons a bit, but does not reach a conclusion.  Moreover, most of the cons are generally costs of using court appointed experts: identifying a witness both parties agree to might be difficult, witnesses might not be “true neutrals,” judges might give too much deference to the opinion of the expert.  Tad Lipsky analyzes the potential for court appointed experts and other possible solutions to the increasing complexity of economic testimony in antitrust cases here.  Yet, if I’m right that this happens much more often in patent cases than it does in antitrust cases — another area of law relying upon outside disciplines (whether a technological field or economics and statistics) — it raises an interesting question as to why?  I admit I might be wrong about the empirical premise.  But it is certainly the case that court appointment is very rare in antitrust cases.

Here are a few hypotheses to explain the higher judicial demand for outside expertise in patent cases:

• Appeal and reversal rates are higher in patent claim construction cases and reversal-averse judges want the help.
• Judges — rightly or wrongly — have greater confidence in their ability to understand the underlying economics in a complex antitrust case than in their ability to tangle in a “hard science” discipline — is it more embarrassing to “ask for directions” in an antitrust case?
• Closer substitutes are available for economic training for judges (e.g. the LEC Economic Institute) than for the hard science disciplines involved in patent cases
• Other Institutional reasons: does Daubert work differently in antitrust cases than patent cases?

I’m sure there are others.  But it seems to be a potentially interesting puzzle that I’ve been thinking about for awhile.  I know we’ve got some experienced antitrust litigators and consulting economists reading.  I’d be very interested in hearing thoughts on what might explain the judicial reluctance — relative to patent cases, assume I’m right about that (and I think I am) — to appoint their own experts.

Matt Reilly, former Assistant Director of the Federal Trade Commission, is joining Simpson Thacher & Bartlett. Reilly will partner the firm’s Antitrust Practice and be based in its D.C. office. His move comes after 13 years at the FTC, where he was the lead litigator in high-profile cases like the agency’s challenge to the Whole Foods-Wild Oats merger. From 2007, Reilly served as head of the Mergers IV decision.

Congratulations to Matt — formerly head of Mergers IV — and to Simpson Thacher.

The Journal of Antitrust Enforcement 

Call for Papers – The Journal of Antitrust Enforcement (OUP) Oxford University Press is delighted to announce the launch of a new competition law journal dedicated to antitrust enforcement. The Journal of Antitrust Enforcement forms a joint collaboration between OUP, the Oxford University Centre for Competition Law and Policy and the George Washington University Competition Law Center.

The Journal of Antitrust Enforcement will provide a platform for cutting edge scholarship relating to public and private competition law enforcement, both at the international and domestic levels.

The journal covers a wide range of enforcement related topics, including: public and private competition law enforcement, cooperation between competition agencies, the promotion of worldwide competition law enforcement, optimal design of enforcement policies, performance measurement, empirical analysis of enforcement policies, combination of functions in the mandate of the competition agency, competition agency governance, procedural fairness, competition enforcement and human rights, the role of the judiciary in competition enforcement, leniency, cartel prosecution, effective merger enforcement and the regulation of sectors.

Submission of papers: Original articles that advance the field are published following a peer and editorial review process. The editors welcome submission of papers on all subjects related to antitrust enforcement. Papers should range from 8,000 to 15,000 words (including footnotes) and should be prefaced by an abstract of less than 200 words.

General inquiries may be directed to the editors: Ariel Ezrachi at the Oxford CCLP or William Kovacic at George Washington University. Submission, by email, should be directed to the Managing Editor, Hugh Hollman.

Further information about the journal may be found online: http://www.oxfordjournals.org/our_journals/antitrust/

The Government’s Complaint against Apple is fundamentally flawed as a matter of fact and law. Apple has not “conspired” with anyone, was not aware of any alleged “conspiracy” by others, and never “fixed prices.” Apple individually negotiated bilateral agreements with book publishers that allowed it to enter and compete in a new market segment – eBooks. The iBookstore offered its customers a new outstanding, innovative eBook reading experience, an expansion of categories and titles of eBooks, and competitive prices.

And the last paragraph of the Answer’s introduction:

The Supreme Court has made clear that the antitrust laws are not a vehicle for Government intervention in the economy to impose its view of the “best” competitive outcome, or the “optimal” means of competition, but rather to address anticompetitive conduct. Apple’s entry into eBook distribution is classic procompetitive conduct, and for Apple to be subject to hindsight legal attack for a business strategy well-recognized as perfectly proper sends the wrong message to the market, and will discourage competitive entry and innovation and harm consumers.

A theme that runs throughout the Answer is that the “pre-Apple” world of e-books was characterized by little or no competition and that the agency agreements were necessary for its entry, which in turn has resulted in a dramatic increase in output.  The Answer is available here.  While commentary has focused primarily upon the important question of the competitive effects of the move to the agency model, including Geoff’s post here, my hunch is that if the case is litigated its legacy will be as an “agreement” case rather than what it contributes to rule of reason analysis.  In other words, if Apple gets to the rule of reason, the DOJ (like most plaintiffs in rule of reason cases) are likely to lose — especially in light of at least preliminary evidence of dramatic increases in output.  The critical question — I suspect — will be about proof of an actual naked price fixing agreement among publishers and Apple, and as a legal matter, what evidence is sufficient to establish that agreement for the purposes of Section 1 of the Sherman Act.  The Complaint sets forth the evidence the DOJ purports to have on this score.  But my hunch — and it is no more than that — is that this portion of the case will prove more important than any battle between economic experts on the relevant competitive effects.

Call for Papers Announcement

AALS Section on Antitrust and Economic Regulation

Google and Antitrust

2013 AALS Annual Meeting

January 4-7, 2013

New Orleans, Louisiana

The AALS Section on Antitrust and Economic Regulation will hold a program on Google and Antitrust during the AALS 2013 Annual Meeting in New Orleans. The program will explore the Federal Trade Commission’s potential antitrust case against Google and the Google Book Search settlement. The program will feature a roundtable panel involving leading scholars who have addressed these issues: Dan Crane (Michigan), Marina Lao (Seton Hall), Frank Pasquale (Seton Hall), and Pam Samuelson (Berkeley). We are looking to add one additional panelist through this Call for Papers.

Submission procedure:

Anyone interested in participating is encouraged to submit a draft paper (preferred, and roughly in the range of 20-40 pages) or proposal by e-mail to Michael A. Carrier, at mcarrier@camlaw.rutgers.edu by September 4, 2012.

Eligibility:

Full-time faculty members of AALS member law schools are eligible to submit papers. Faculty at fee-paid law schools; foreign, visiting and adjunct faculty members; graduate students; fellows; and non-law school faculty are not eligible to submit. Papers may already be accepted for publication, as long as the paper will not be published before the AALS meeting.

Registration fee and expenses:

Call-for-Paper participants will be responsible for paying their annual meeting registration fee and travel expenses.

How will papers be reviewed?

Papers will be reviewed and selected by members of the Executive Committee of the AALS Section on Antirust and Economic Regulation: Darren Bush (Houston), Michael Carrier (Rutgers-Camden), Daniel Crane (Michigan), Hillary Greene (Connecticut), Scott Hemphill (Columbia), and D. Daniel Sokol (Florida).

Will the program be published in a journal?

Yes, as a symposium in the Harvard Journal of Law & Technology Digest.

Deadline date for submission:

September 4, 2012. Decisions will be announced by September 28, 2012.

Program date and time:

Saturday, January 5, 2013, 10:30am – 12:15pm.

Contact for submission and inquires:

Michael A. Carrier

Chair, AALS Section on Antitrust and Economic Regulation

Rutgers Law School – Camden
217 North Fifth Street
Camden, NJ 08102
(856) 225-6380
mcarrier@camlaw.rutgers.edu

Drip pricing is a pricing technique in which firms advertise only part of a product’s price and reveal other charges later as the customer goes through the buying process. The additional charges can be mandatory charges, such as hotel resort fees, or fees for optional upgrades and add-ons. Drip pricing is used by many types of firms, including internet sellers, automobile dealers, financial institutions, and rental car companies.

Economists and marketing academics will be brought together to examine the theoretical motivation for drip pricing and its impact on consumers, empirical studies, and policy issues pertaining to drip pricing. The sessions will address the following questions: Why do firms engage in drip pricing? How does drip pricing affect consumer search? Where does drip pricing occur? When is drip pricing harmful? Are there efficiency justifications for the practice in some situations? Can competition prevent firms from harming consumers through drip pricing? Can consumer experience or firm reputation limit harm from drip pricing? What types of policies could lead to improved consumer decision making and under what circumstances should such policies be applied?

The workshop, which will be free and open to the public, will be held at the FTC’s Conference Center, located at 601 New Jersey Avenue, N.W., Washington, DC. A government-issued photo ID is required for entry. Pre-registration for this workshop is not necessary, but is encouraged, so that we may better plan for the event.

Here is the conference agenda:

It is worth noting at the outset that, as far as I know, Wilkinson has no antitrust experience; she is a litigator.  Now, there’s nothing wrong with an agency enlisting a hired gun to help litigate its cases, but when the hired gun is not hired for her substantive expertise but rather her ability to persuade, it perhaps suggests something about the strength of the agency’s case.

It’s reading tea leaves (a time-honored, if flawed, DC practice), but Wilkinson’s hiring suggests to me that the FTC views its case as one that will require some serious rhetorical handling in order to win.  While on its Sherman Act Section 2 merits that would be true anyway, it also suggests to me that the FTC intends to use the case as an opportunity to push – and seek court approval for – the ambitious plans of some of the Commissioners to expand the agency’s powers under Section 5 of the FTC Act.  This would be a costly mistake for consumers.

Last year, in an interview with Global Competition Review, FTC Chairman Leibowitz was asked whether the agency was “investigating the online search market.”  He declined to answer directly but instead offered this suggestive comment:

What I can say is that one of the commission’s priorities is to find a pure Section Five case under unfair methods of competition.  Everyone acknowledges that Congress gave us much more jurisdiction than just antitrust.  And I go back to this because at some point if and when, say, a large technology company acknowledges an investigation by the FTC, we can use both our unfair or deceptive acts or practice authority and our unfair methods of competition authority to investigate the same or similar unfair competitive behavior . . . .

Commissioner Rosch has likewise suggested that Section 5 could and should be expanded, precisely to reach activity that would be unreachable under current Section 2 standards.  The effort to expand the FTC’s antitrust enforcement under Section 5, and to write out the jurisprudential standards of Section 2, is a troubling one.

Following Sherman Act jurisprudence, traditionally the FTC has understood (and courts have demanded) that antitrust enforcement under Section 5 (as a technical matter, the FTC does not directly enforce Section 2 of the Sherman Act but instead enforces the Act via its Section 5 authority) requires demonstrable consumer harm to apply.  But this latest effort reveals an agency pursuing an interpretation of Section 5 that would give it unprecedented and largely-unchecked authority.  In particular, the definition of “unfair” competition wouldn’t be confined to the traditional antitrust measures—reduction in output or an output-reducing increase in price—but could expand to, well, just about whatever the agency deems improper.

Most problematically, Commissioner Rosch has suggested that Section Five could address conduct that has the effect of “reducing consumer choice” without requiring any evidence that conduct actually reduces consumer welfare—a theory that only a vanishingly few commentators (essentially one law professor and one FTC lawyer have written the entire body of scholarship on this topic) support.  Troublingly, “reducing consumer choice” seems to be a euphemism for “harm to competitors, not competition,” where the reduction in choice is the reduction of choice of competitors who may be put out of business by a competitor’s conduct.

Under Section 2 standards, the FTC would have a tough time winning its case.  This is because the agency doesn’t seem to have a theory of harm that reaches consumers—and none of Google’s competitors that have been stoking the flames has offered one.  Instead, all of the propounded theories turn on harm to competitors.  But the U.S. has a long tradition of resisting enforcement based on harm to competitors without a showing of harm to consumers.  If all that were required were harm to competitors, then all pro-competitive conduct would be actionable under the antitrust laws; for what is the aim and effect of competition if not the besting of one’s competitors?  The competitive process is by definition one that can “reduce consumer choice.”  This is why the great economist Joseph Schumpeter famously called the competitive process one of “creative destruction.”

In fact, the theoretical case against Google depends entirely on the ways it may have harmed certain competitors rather than on any evidence of harm to consumer welfare.  For example, Google’s implementation and placement within its organic search results of its own shopping results is alleged to make it difficult for competing product-specific search sites (like Nextag or Amazon, for example) to reach Google’s users.  Leaving aside the weakness of the factual allegation (I challenge you to perform a search for a product on Google that doesn’t offer up a mix of retailers, manufacturers, review sites and multiple product search engine results on the first page), it is hard to see how consumers are harmed here.

On the one hand, users have easy access to competing sites directly from their browser’s address bar and, increasingly importantly, to more persuasive product reviews from friends and colleagues via social media.  In this way even the basic factual predicate is faulty, and it’s not even clear that consumer choice itself is reduced if Nextag is absent from Google searches, as the site can be reached by, among other things, links from reviews, links from friends on social media, other general search engines, and every browser address bar.

On the other hand, users are by no means foreclosed from access to actual products (and there is no evidence that I know of that consumer prices or supply are in any way affected) if any particular product search engine doesn’t appear in the top results.  Placement of Google’s own product search results in fact streamlines consumers’ access, and Google’s comprehensive and effective search engine ensures that its shopping results are probably better than anyone else’s anyway.  The same is true for travel searches, maps, and the range of other complained-of results.  Flight information and reservations, location information and maps are widely available online and off through myriad sources other than Google.

The bottom line is that harm to competitors is at least as consistent with pro-competitive as with anti-competitive conduct, and simply counting the number of firms offering competing choices to consumers that happen to appear in the top few Google search results is no way to infer actual consumer harm.

One of the most important shifts in antitrust over the past 30 years has been the move away from indirect and unreliable proxies of consumer harm toward a more direct, effects-based analysis.  Like the now archaic focus on market concentration in the structure-conduct-performance framework at the core of “old” merger analysis, the consumer choice framework substitutes an indirect and deeply flawed proxy for consumer welfare for assessment of economically relevant economic effects.  By focusing on the number of choices, the analysis shifts attention to the wrong question.

The fundamental question from an antitrust perspective is whether consumer choice is a better predictor of consumer outcomes than current tools allow.   There doesn’t appear to be anything in economic theory to suggest that it would be.  Instead, it reduces competitive analysis to a single attribute of market structure and appears susceptible to interpretations that would sacrifice a meaningful measure of consumer welfare (incorporating assessment of price, quality, variety, innovation and other amenities) on economically unsound grounds.  It is also not the law.

Commissioner Rosch has suggested that the Supreme Court in its 2007 Leegin decision provided a green light for consumer-choice-reducing antitrust theories without a showing of traditional (output-reducing) harm.  But as Josh pointed out, the Ninth Circuit has held (in last year’s Brantley v. NBC Universal decision, which Thom has also blogged about here and here) that Leegin more accurately holds precisely the opposite, and coupled with the Court’s 2006 Independent Ink decision, seems clearly to restrict, rather than authorize, a consumer choice claim:

The Supreme Court has noted that both [reduced choice and increased prices] are “fully consistent with a free, competitive market,” [citing Independent Ink] and are therefore insufficient to establish an injury to competition. Thus even vertical agreements that prohibit retail price reductions and result in higher consumer prices . . . are not unlawful absent a further showing of anticompetitive conduct [citing Leegin].

Modern antitrust analysis, both in scholarship and in the courts, quite properly rejects the reductive and unsupported sort of theories that would undergird a Section 5 case against Google.  That the FTC might have a better chance of winning a Section 5 case, unmoored from the economically sound limitations of Section 2 jurisprudence, is no reason for it to pursue such a case.  Quite the opposite:  When consumer welfare is disregarded for the sake of the agency’s power, it ceases to further its mandate.  No doubt Beth Wilkinson could help make the rhetorical argument for a Section 5 case against Google based on a tenuous consumer choice theory.  But economic substance, not self-aggrandizement by rhetoric, should guide the agency.  Competition and consumers are dramatically ill-served by the latter.

Full disclosure: I worked briefly with Beth Wilkinson at Latham and Watkins.  Further full disclosure: The International Center for Law and Economics, of which I am the Executive Director, has received support to make research grants from Google, among many other companies and individuals.

[Cross-posted at Forbes]

What you like the least about economics in competition law?

Mind boggling theories disconnected from the real world. These are a complete waste of time.

Amen, Brother!

“Oscar” of the best antitrust law book? Non-antitrust book?

Best Antitrust Book:  Oliver E. Williamson, Markets and Hierarchies: Analysis and Antitrust Implications (1975).

Best non-antitrust book:  Louis Menand, The Metaphysical Club: A Story of Ideas in America (2001)

* * *

Let’s do it like economists => assume that you could change 3 rules, principles, judgments, institutions in the current EU antitrust system. What would you do? 

Answer: I would speak only to the United States system, where I would change the following three things:

A.  The per se rule against tying arrangements (insofar as it still exists)

B.  The strict recoupment requirement in predatory pricing cases when prices are clearly below average variable cost

C.  The federal courts’ repeated refusal to see the competitive harm in reverse payment settlements in pharmaceutical infringement cases

* * *

A piece of “counterfactual” analysis: what would you do if you weren’t in your current position?

I would be either a Dutch Reformed clergyman or a Professor of American History

* * *

Favorite movies?

Sappy chickflicks: The Notebook, Sleepless in Seattle, Titanic