[TOTM: The following is part of a digital symposium by TOTM guests and authors on Antitrust’s Uncertain Future: Visions of Competition in the New Regulatory Landscape. Information on the authors and the entire series of posts is available here.]
If S.2992—the American Innovation and Choice Online Act or AICOA—were to become law, it would be, at the very least, an incomplete law. By design—and not for good reason, but for political expediency—AICOA is riddled with intentional uncertainty. In theory, the law’s glaring definitional deficiencies are meant to be rectified by “expert” agencies (i.e., the DOJ and FTC) after passage. But in actuality, no such certainty would ever emerge, and the law would stand as a testament to the crass political machinations and absence of rigor that undergird it. Among many other troubling outcomes, this is what the future under AICOA would hold.
Guidelines Cannot Substitute for the Law’s Lack of Legal Certainty
Two months ago, the American Bar Association’s (ABA) Antitrust Section published a searing critique of AICOA in which it denounced the bill for being poorly written, vague, and departing from established antitrust-law principles. As Lazar Radic and I discussed in a previous post, what made the ABA’s letter to Congress so eye-opening was that it was penned by a typically staid group with a reputation for independence, professionalism, and ideational heterogeneity.
One of the main issues the ABA flagged in its letter is that the introduction of vague new concepts—like “materially harm competition,” which does not exist anywhere in current antitrust law—into the antitrust mainstream will risk substantial legal uncertainty and produce swathes of unintended consequences.
According to some, however, the bill’s inherent uncertainty is a feature, not a bug. It leaves enough space for specialist agencies to define the precise meaning of key terms without unduly narrowing the scope of the bill ex ante.
In particular, supporters of the bill have pointed to the prospect of agency guidelines under the law to rescue it from the starkest of the fundamental issues identified by the ABA. Section 4 of AICOA requires the DOJ and FTC to issue “agency enforcement guidelines” no later than 270 days after the date of enactment:
outlining policies and practices relating to conduct that may materially harm competition under section 3(a), agency interpretations of the affirmative defenses under section 3(b), and policies for determining the appropriate amount of a civil penalty to be sought under section 3(c).
In pointing to the prospect of guidelines, however, supporters are inadvertently admitting defeat—and proving the ABA’s point: AICOA is not ready for prime time.
This thinking is misguided for at least three reasons:
Guidelines are not rules
As section 4(d) of AICOA recognizes, guidelines are emphatically nonbinding:
The joint guidelines issued under this section do not … operate to bind the Commission, Department of Justice, or any person, State, or locality to the approach recommended in the guidelines.
As such, the value of guidelines in dispelling legal uncertainty is modest, at best.
This is even more so in today’s highly politicized atmosphere, where guidelines can be withdrawn at the tip of the ballot (we’ve just seen the FTC rescind the Vertical Merger Guidelines it put in place less than a year ago). Given how politicized the issuing agencies themselves have become, it’s a virtual certainty that the guidelines produced in response to AICOA would be steeped in partisan politics and immediately changed with a change in administration, thus providing no more lasting legal certainty than speculation by a member of Congress.
Guidelines are not the appropriate tool to define novel concepts
Regardless of this political reality, however, the mixture of vagueness and novelty inherent in the key concepts that underpin the infringements and affirmative defenses under AICOA—such as “fairness,” “preferencing,” “materiality”, or the “intrinsic” value of a product—undermine the usefulness (and legitimacy) of guidelines.
Indeed, while laws are sometimes purposefully vague—operating as standards rather than prescriptive rules—to allow for more flexibility, the concepts introduced by AICOA don’t even offer any cognizable standards suitable for fine-tuning.
The operative terms of AICOA don’t have definitive meanings under antitrust law, either because they are wholly foreign to accepted antitrust law (as in the case of “self-preferencing”) or because the courts have never agreed on an accepted definition (as in the case of “fairness”). Nor are they technical standards, which are better left to specialized agencies rather than to legislators to define, such as in the case of, e.g., pollution (by contrast: what is the technical standard for “fairness”?).
Indeed, as Elyse Dorsey has noted, the only certainty that would emerge from this state of affairs is the certainty of pervasive rent-seeking by non-altruistic players seeking to define the rules in their favor.
As we’ve pointed out elsewhere, the purpose of guidelines is to reflect the state of the art in a certain area of antitrust law and not to push the accepted scope of knowledge and practice in a new direction. This not only overreaches the FTC’s and DOJ’s powers, but also risks galvanizing opposition from the courts, thereby undermining the utility of adopting guidelines in the first place.
Guidelines can’t fix a fundamentally flawed law
Expecting guidelines to provide sensible, administrable content for the bill sets the bar overly high for guidelines, and unduly low for AICOA.
The alleged harms at the heart of AICOA are foreign to antitrust law, and even to the economic underpinnings of competition policy more broadly. Indeed, as Sean Sullivan has pointed out, the law doesn’t even purport to define “harms,” but only serves to make specific conduct illegal:
Even if the conduct has no effect, it’s made illegal, unless an affirmative defense is raised. And the affirmative defense requires that it doesn’t ‘harm competition.’ But ‘harm competition’ is undefined…. You have to prove that harm doesn’t result, but it’s not really ever made clear what the harm is in the first place.”
“Self-preferencing” is not a competitive defect, and simply declaring it to be so does not make it one. As I’ve noted elsewhere:
The notion that platform entry into competition with edge providers is harmful to innovation is entirely speculative. Moreover, it is flatly contrary to a range of studies showing that the opposite is likely true…. The theory of vertical discrimination harm is at odds not only with this platform-specific empirical evidence, it is also contrary to the long-standing evidence on the welfare effects of vertical restraints more broadly …
… [M]andating openness is not without costs, most importantly in terms of the effective operation of the platform and its own incentives for innovation.
Asking agencies with an expertise in competition policy to enact economically sensible guidelines to direct enforcement against such conduct is a fool’s errand. It is a recipe for purely political legislation adopted by competition agencies that does nothing to further their competition missions.
AICOA’s Catch-22 Is Its Own Doing, and Will Be Its Downfall
AICOA’s Catch-22 is that, by making the law so vague that it needs enforcement guidelines to flesh it out, AICOA renders both itself and those same guidelines irrelevant and misses the point of both legal instruments.
Ultimately, guidelines cannot resolve the fundamental rule-of-law issues raised by the bill and highlighted by the ABA in its letter. To the contrary, they confirm the ABA’s concerns that AICOA is a poorly written and indeterminate bill. Further, the contentious elements of the bill that need clarification are inherently legislative ones that—paradoxically—shouldn’t be left to competition-agency guidelines to elucidate.
The upshot is that any future under AICOA will be one marked by endless uncertainty and the extreme politicization of both competition policy and the agencies that enforce it.
The fate of the badly misnamed American Innovation and Choice Online Act, S. 2992 (AICOA), may be decided by the August congressional recess. AICOA’s serious flaws have been ably dissected by numerous commentators (see, for example, here, here, here, and here). Moreover, respected former senior Democratic antitrust enforcers who have advocated more aggressive antitrust enforcement have also come out against the bill. For example, Stanford professor and former Acting Assistant Attorney General for Antitrust Douglas Melamed (who oversaw the Microsoft case for the Clinton Administration) very recently authored an article stressing that AICOA “is likely to impair innovation by the platforms.” The case has ably been made that the perverse welfare-reducing effects of multiple AICOA provisions, which impose inordinate costs (stemming, for instance, from interoperability requirements and prohibitions on “self-preferencing,” “discrimination,” and data usage) and discourage efficient vertical integration (see here), among other defects.
One aspect of AICOA that perhaps has garnered less attention is its affront to the rule of law. That deficiency in and of itself is sufficient to justify the summary rejection of this legislation by the Congress. Let’s examine it more closely.
A core element of the rule of law is that the government should apply the law neutrally to similarly situated entities. This principle is mocked, however, by the AICOA. The AICOA’s convoluted definition of “covered platform,” found in section 2(a)(5)(B) of S. 2992, focuses on rather arbitrary “monthly user,” capitalization, and sales value thresholds. Although the definitional elements were clearly designed to capture only the largest current digital platforms (all American) that have been in the public spotlight – Amazon, Facebook (now Meta), Apple, Google (now Alphabet), and Microsoft (possibly) – companies could fall within or outside the bill’s scope based on unpredictable changes in financial and user data in the future. This would lead to uncertainty as to whether particular firms were covered by the bill. It would also encourage corporate gamesmanship by specific firms as they sought to avoid the AICOA’s reach. As such, business planning would be rendered more difficult and less efficient, and the rule of law would be frayed.
A related rule of law concern is that parties be informed of the conduct they must adopt in order to avoid violating a particular law. Contemporary antitrust law does a far better job than the AICOA in satisfying this concern.
Contemporary American antitrust law has identified a few types of actions that are inherently anticompetitive, and therefore are “per se illegal” under all circumstances (bid rigging and naked horizontal price fixing and market division). Most business behavior, however, is assessed on a case-by-case basis under the antitrust “rule of reason,” which only condemns behavior whose anticompetitive effects outweigh its procompetitive effects. Rule of reason analysis prohibits behavior that inefficiently weakens the competitive process and excludes rivals for no legitimate business reason, and thereby tends to reduce consumer welfare. Mere harm to individual competitors (due say to more efficient or innovative production techniques) is not condemned. Specific enforcement agency guidance through speeches, enforcement actions, and enforcement guidelines have developed over time on a bipartisan basis to clarify what competition on the merits means in particular circumstances. As former Acting Assistant Attorney General for Antitrust Andrew Finch explained in a 2017 speech, enforcers’ emphasis has been giving notice about enforcement principles that allows private parties to reasonably predict the legal consequences of their actions:
[S]tability and continuity in enforcement are fundamental to the rule of law. The rule of law is about notice and reliance. When it is impossible to make reasonable predictions about how a law will be applied, or what the legal consequences of conduct will be, these important values are diminished.
In comparison with existing antitrust law, however, AICOA, does a very poor job of fostering predictability regarding what is prohibited. As Professor Melamed explains, it makes it unclear what it means when it uses the key term “material harm to competition”— whose absence a covered platform must demonstrate in order to avoid liability under the bill. Specifically, as Melamed stresses:
[T]he bill does not include the normal antitrust language (e.g., “competition in the market as a whole,” “market power”) that gives meaning to the idea of harm to competition, nor does it say that the imprecise language it does use is to be construed as that language is construed by the antitrust laws. . . . The bill could be very harmful if it is construed to require, not increased market power, but simply harm to rivals.
Rule of law predictability is further undermined by other ambiguous AICOA terms, which also threaten to harm competition and innovation, as Professor Dan Spulber points out (citations omitted):
The new [proposed platform-related] antitrust laws may have adverse effects on innovation and competition because of imprecise concepts and terminology. The American Bar Association Antitrust Law Section expressed concerns about “ambiguous terminology in the [AICOA] Bill regarding fairness, preferencing, materiality, and harm to competition on covered platforms.” The Section recommended that “these definitions direct attention to analysis consistent with antitrust principles: effects-based inquiries concerned with harm to the competitive process.”
Finally, AICOA also is in tension with the rule of law by placing the onus first on private parties to show that they have not violated the law (have not caused “material harm to competition”) when they have engaged in certain types of specified behavior deemed “problematic” under the bill. This is at odds with the approach under the antitrust rule of reason, in which the government first must show harm to competition before the defendant is required to justify its behavior as having procompetitive welfare-enhancing features. The AICOA’s placing of the initial burden on parties is troublesome, because the particular actions that trigger an initial presumption of illegality (self-preferencing, limitations on competitor access to the covered platform, certain “discriminatory” acts, certain restrictions on interoperability, certain use of nonpublic data, and so forth) are efficient and welfare-enhancing in many situations. Thus, AICOA undoubtedly would lead to the presumptive condemnation of much procompetitive conduct. Platforms that fell just outside AICOA’s coverage would not face this risk, because their similar conduct would be under the rule of reason. In short, the AICOA would lead to disparate treatment of identical conduct by similar firms, based on the bill’s arbitrary jurisdictional line-drawing. In conclusion, the AICOA sows confusion and undermines legal stability, continuity, and predictability. As such, it is an affront to the rule of law and should not be enacted, without regard to its substantive policy merits.
The 117th Congress closed out without a floor vote on either of the major pieces of antitrust legislation introduced in both chambers: the American Innovation and Choice Online Act (AICOA) and the Open Apps Market Act (OAMA). But it was evident at yesterday’s hearing of the Senate Judiciary Committee’s antitrust subcommittee that at least some advocates—both in academia and among the committee leadership—hope to raise those bills from the dead.
Of the committee’s five carefully chosen witnesses, only New York University School of Law’s Daniel Francis appeared to appreciate the competitive risks posed by AICOA and OAMA—noting, among other things, that the bills’ failure to distinguish between harm to competition and harm to certain competitors was a critical defect.
Yale School of Management’s Fiona Scott Morton acknowledged that ideal antitrust reforms were not on the table, and appeared open to amendments. But she also suggested that current antitrust standards were deficient and, without much explanation or attention to the bills’ particulars, that AICOA and OAMA were both steps in the right direction.
Subcommittee Chair Amy Klobuchar (D-Minn.), who sponsored AICOA in the last Congress, seems keen to reintroduce it without modification. In her introductory remarks, she lamented the power, wealth (if that’s different), and influence of Big Tech in helping to sink her bill last year.
Apparently, firms targeted by anticompetitive legislation would rather they weren’t. Folks outside the Beltway should sit down for this: it seems those firms hire people to help them explain, to Congress and the public, both the fact that they don’t like the bills and why. The people they hire are called “lobbyists.” It appears that, sometimes, that strategy works or is at least an input into a process that sometimes ends, more or less, as they prefer. Dirty pool, indeed.
There are, of course, other reasons why AICOA and OAMA might have stalled. Had they been enacted, it’s very likely that they would have chilled innovation, harmed consumers, and provided a level of regulatory discretion that would have been very hard, if not impossible, to dial back. If reintroduced and enacted, the bills would be more likely to “rein in” competition and innovation in the American digital sector and, specifically, targeted tech firms’ ability to deliver innovative products and services to tens of millions of (hitherto very satisfied) consumers.
Our colleagues at the International Center for Law & Economics (ICLE) and its affiliated scholars, among others, have explained why. For a selected bit of self-plagiarism, AICOA and OAMA received considerable attention in our symposium on Antitrust’s Uncertain Future; ICLE’s Dirk Auer had a Truth on the Market post on AICOA; and Lazar Radic wrote a piece on OAMA that’s currently up for a Concurrences award.
To revisit just a few critical points:
AICOA and OAMA both suppose that “self-preferencing” is generally harmful. Not so. A firm might invest in developing a successful platform and ecosystem because it expects to recoup some of that investment through, among other means, preferred treatment for some of its own products. Exercising a measure of control over downstream or adjacent products might drive the platform’s development in the first place (see here and here for some potential advantages). To cite just a few examples from the empirical literature, Li and Agarwal (2017) find that Facebook’s integration of Instagram led to a significant increase in user demand, not just for Instagram, but for the entire category of photography apps; Foerderer, et al. (2018) find that Google’s 2015 entry into the market for photography apps on Android created additional user attention and demand for such apps generally; and Cennamo, et al. (2018) find that video games offered by console firms often become blockbusters and expanded the consoles’ installed base. As a result, they increase the potential for independent game developers, even in the face of competition from first-party games.
AICOA and OAMA, in somewhat different ways, favor open systems, interoperability, and/or data portability. All of these have potential advantages but, equally, potential costs or disadvantages. Whether any is procompetitive or anticompetitive depends on particular facts and circumstances. In the abstract, each represents a business model that might well be procompetitive or benign, and that consumers might well favor or disfavor. For example, interoperability has potential benefits and costs, and, as Sam Bowman has observed, those costs sometimes exceed the benefits. For instance, interoperability can be exceedingly costly to implement or maintain, and it can generate vulnerabilities that challenge or undermine data security. Data portability can be handy, but it can also harm the interests of third parties—say, friends willing to be named, or depicted in certain photos on a certain platform, but not just anywhere. And while recent commentary suggests that the absence of “open” systems signals a competition problem, it’s hard to understand why. There are many reasons that consumers might prefer “closed” systems, even when they have to pay a premium for them.
AICOA and OAMA both embody dubious assumptions. For example, underlying AICOA is a supposition that vertical integration is generally (or at least typically) harmful. Critics of established antitrust law can point to a few recent studies that cast doubt on the ubiquity of benefits from vertical integration. And it is, in fact, possible for vertical mergers or other vertical conduct to harm competition. But that possibility, and the findings of these few studies, are routinely overstated. The weight of the empirical evidence shows that vertical integration tends to be competitively benign. For example, widely acclaimed meta-analysis by economists Francine Lafontaine (former director of the Federal Trade Commission’s Bureau of Economics under President Barack Obama) and Margaret Slade led them to conclude:
“[U]nder most circumstances, profit-maximizing vertical integration decisions are efficient, not just from the firms’ but also from the consumers’ points of view. Although there are isolated studies that contradict this claim, the vast majority support it. . . . We therefore conclude that, faced with a vertical arrangement, the burden of evidence should be placed on competition authorities to demonstrate that that arrangement is harmful before the practice is attacked.”
Network effects and data advantages are not insurmountable, nor even necessarily harmful. Advantages of scope and scale for data sets vary according to the data at issue; the context and analytic sophistication of those with access to the data and application; and are subject to diminishing returns, in any case. Simple measures of market share or other numerical thresholds may signal very little of competitive import. See, e.g., this on the contestable platform paradox; Carl Shapiro on the putative decline of competition and irrelevance of certain metrics; and, more generally, antitrust’s well-grounded and wholesale repudiation of the Structure-Conduct-Performance paradigm.
These points are not new. As we note above, they’ve been made more carefully, and in more detail, before. What’s new is that the failure of AICOA and OAMA to reach floor votes in the last Congress leaves their sponsors, and many of their advocates, unchastened.
Conclusion
At yesterday’s hearing, Sen. Klobuchar noted that nations around the world are adopting regulatory frameworks aimed at “reining in” American digital platforms. True enough, but that’s exactly what AICOA and OAMA promise; they will not foster competition or competitiveness.
Novel industries may pose novel challenges, not least to antitrust. But it does not follow that the EU’s Digital Markets Act (DMA), proposed policies in Australia and the United Kingdom, or AICOA and OAMA represent beneficial, much less optimal, policy reforms. As Francis noted, the central commitments of OAMA and AICOA, like the DMA and other proposals, aim to help certain firms at the expense of other firms and consumers. This is not procompetitive reform; it is rent-seeking by less-successful competitors.
AICOA and OAMA were laid to rest with the 117th Congress. They should be left to rest in peace.
[TOTM: The following is part of a digital symposium by TOTM guests and authors on Antitrust’s Uncertain Future: Visions of Competition in the New Regulatory Landscape. Information on the authors and the entire series of posts is available here.]
Earlier this month, Professors Fiona Scott Morton, Steve Salop, and David Dinielli penned a letter expressing their “strong support” for the proposed American Innovation and Choice Online Act (AICOA). In the letter, the professors address criticisms of AICOA and urge its approval, despite possible imperfections.
“Perhaps this bill could be made better if we lived in a perfect world,” the professors write, “[b]ut we believe the perfect should not be the enemy of the good, especially when change is so urgently needed.”
The problem is that the professors and other supporters of AICOA have shown neither that “change is so urgently needed” nor that the proposed law is, in fact, “good.”
Is Change ‘Urgently Needed’?
With respect to the purported urgency that warrants passage of a concededly imperfect bill, the letter authors assert two points. First, they claim that AICOA’s targets—Google, Apple, Facebook, Amazon, and Microsoft (collectively, GAFAM)—“serve as the essential gatekeepers of economic, social, and political activity on the internet.” It is thus appropriate, they say, to amend the antitrust laws to do something they have never before done: saddle a handful of identified firms with special regulatory duties.
But is this oft-repeated claim about “gatekeeper” status true? The label conjures up the oldTerminal Railroad case, where a group of firms controlled the only bridges over the Mississippi River at St. Louis. Freighters had no choice but to utilize their services. Do the GAFAM firms really play a similar role with respect to “economic, social, and political activity on the internet”? Hardly.
With respect to economic activity, Amazon may be a huge player, but it still accounts foronly 39.5% of U.S. ecommerce sales—and far less of retail sales overall. Consumers have gobs of other ecommerce options, and so do third-party merchants, which may sell their wares using Shopify, Ebay, Walmart, Etsy, numerous other ecommerce platforms, or their own websites.
For social activity on the internet, consumers need not rely on Facebook and Instagram. They can connect with others via Snapchat, Reddit, Pinterest, TikTok, Twitter, and scores of other sites. To be sure, all these services have different niches, but the letter authors’ claim that the GAFAM firms are “essential gatekeepers” of “social… activity on the internet” is spurious.
The second argument the letter authors assert in support of their claim of urgency is that “[t]he decline of antitrust enforcement in the U.S. is well known, pervasive, and has left our jurisprudence unable to protect and maintain competitive markets.” In other words, contemporary antitrust standards are anemic and have led to a lack of market competition in the United States.
The evidence for this claim, which is increasingly parroted in the press and among the punditry, is weak. Proponents primarily point to studies showing:
increasing industrial concentration;
higher markups on goods and services since 1980;
a declining share of surplus going to labor, which could indicate monopsony power in labor markets; and
a reduction in startup activity, suggesting diminished innovation.
Examined closely, however, those studies fail to establish a domestic market power crisis.
Industrial concentration has little to do with market power in actual markets. Indeed, research suggests that, while industries may be consolidating at the national level, competition at the market (local) level is increasing, as more efficient national firms open more competitive outlets in local markets. As Geoff Manne sums up this research:
Most recently, several working papers looking at the data on concentration in detail and attempting to identify the likely cause for the observed data, show precisely the opposite relationship. The reason for increased concentration appears to be technological, not anticompetitive. And, as might be expected from that cause, its effects are beneficial. Indeed, the story is both intuitive and positive.
What’s more, while national concentration does appear to be increasing in some sectors of the economy, it’s not actually so clear that the same is true for local concentration — which is often the relevant antitrust market.
With respect to the evidence on markups, the claim of a significant increase in the price-cost margin depends crucially on the measure of cost. The studies suggesting an increase in margins since 1980 use the “cost of goods sold” (COGS) metric, which excludes a firm’s management and marketing costs—both of which have become an increasingly significant portion of firms’ costs. Measuring costs using the “operating expenses” (OPEX) metric, which includes management and marketing costs,reveals that public-company markups increased only modestly since the 1980s and that the increase was within historical variation. (It is also likely that increased markups since 1980 reflect firms’ more extensive use of technology and their greater regulatory burdens, both of which raise fixed costs and require higher markups over marginal cost.)
As for the declining labor share, that dynamic is occurring globally. Indeed, the decline in the labor share in the United States has been less severe than in Japan, Canada, Italy, France, Germany, China, Mexico, and Poland, suggesting that anemic U.S. antitrust enforcement is not to blame. (A reduction in the relative productivity of labor is a more likely culprit.)
Finally, the claim of reduced startup activity is unfounded. In itsreport on competition in digital markets, the U.S. House Judiciary Committee asserted that, since the advent of the major digital platforms:
“[t]he number of new technology firms in the digital economy has declined”;
“the entrepreneurship rate—the share of startups and young firms in the [high technology] industry as a whole—has also fallen significantly”; and
“[u]nsurprisingly, there has also been a sharp reduction in early-stage funding for technology startups.” (pp. 46-47.)
Those claims, however, are based on cherry-picked evidence.
In support of the first two, the Judiciary Committee report cited astudy based on data ending in 2011. As Benedict Evans hasobserved, “standard industry data shows that startup investment rounds have actually risen at least 4x since then.”
In support of the third claim, the report cited statistics from anarticle noting that the number and aggregate size of the very smallest venture capital deals—those under $1 million—fell between 2014 and 2018 (after growing substantially from 2008 to 2014). The Judiciary Committee report failed to note, however, the cited article’s observation that small venture deals ($1 million to $5 million) had not dropped and that larger venture deals (greater than $5 million) had grown substantially during the same time period. Nor did the report acknowledge that venture-capital funding hascontinued to increase since 2018.
Finally, there is also reason to think that AICOA’s passage would harm, not help, the startup environment:
AICOA doesn’t directly restrict startup acquisitions, but the activities it would restrict most certainly do dramatically affect the incentives that drive many startup acquisitions. If a platform is prohibited from engaging in cross-platform integration of acquired technologies, or if it can’t monetize its purchase by prioritizing its own technology, it may lose the motivation to make a purchase in the first place.
Despite the letter authors’ claims, neither a paucity of avenues for “economic, social, and political activity on the internet” nor the general state of market competition in the United States establishes an “urgent need” to re-write the antitrust laws to saddle a small group of firms with unprecedented legal obligations.
Is the Vagueness of AICOA’s Primary Legal Standard a Feature?
AICOA bars covered platforms from engaging in three broad classes of conduct (self-preferencing, discrimination among business users, and limiting business users’ ability to compete) where the behavior at issue would “materially harm competition.” It then forbids several specific business practices, but allows the defendant to avoid liability by proving that their use of the practice would not cause a “material harm to competition.”
Critics have argued that “material harm to competition”—a standard that is not used elsewhere in the antitrust laws—is too indeterminate to provide business planners and adjudicators with adequate guidance. The authors of the pro-AICOA letter, however, maintain that this “different language is a feature, not a bug.”
That is so, the letter authors say, because the language effectively signals to courts and policymakers that antitrust should prohibit more conduct. They explain:
To clarify to courts and policymakers that Congress wants something different (and stronger), new terminology is required. The bill’s language would open up a new space and move beyond the standards imposed by the Sherman Act, which has not effectively policed digital platforms.
Putting aside the weakness of the letter authors’ premise (i.e., that Sherman Act standards have proven ineffective), the legislative strategy they advocate—obliquely signal that you want “change” without saying what it should consist of—is irresponsible and risky.
The letter authors assert two reasons Congress should not worry about enacting a liability standard that has no settled meaning. One is that:
[t]he same judges who are called upon to render decisions under the existing, insufficient, antitrust regime, will also be called upon to render decisions under the new law. They will be the same people with the same worldview.
It is thus unlikely that “outcomes under the new law would veer drastically away from past understandings of core concepts….”
But this claim undermines the argument that a new standard is needed to get the courts to do “something different” and “move beyond the standards imposed by the Sherman Act.” If we don’t need to worry about an adverse outcome from a novel, ill-defined standard because courts are just going to continue applying the standard they’re familiar with, then what’s the point of changing the standard?
A second reason not to worry about the lack of clarity on AICOA’s key liability standard, the letter authors say, is that federal enforcers will define it:
The new law would mandate that the [Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice], the two expert agencies in the area of competition, together create guidelines to help courts interpret the law. Any uncertainty about the meaning of words like ‘competition’ will be resolved in those guidelines and over time with the development of caselaw.
This is no doubt music to the ears of members of Congress, who love to get credit for “doing something” legislatively, while leaving the details to an agency so that they can avoid accountability if things turn out poorly. Indeed, the letter authors explicitly play upon legislators’ unwholesome desire for credit-sans-accountability. They emphasize that “[t]he agencies must [create and] update the guidelines periodically. Congress doesn’t have to do much of anything very specific other than approve budgets; it certainly has no obligation to enact any new laws, let alone amend them.”
AICOA does not, however, confer rulemaking authority on the agencies; it merely directs them to create and periodically update “agency enforcement guidelines” and “agency interpretations” of certain affirmative defenses. Those guidelines and interpretations would not bind courts, which would be free to interpret AICOA’s new standard differently. The letter authors presume that courts would defer to the agencies’ interpretation of the vague standard, and they probably would. But that raises other problems.
For one thing, it reduces certainty, which is likely to chill innovation. Giving the enforcement agencies de facto power to determine and redetermine what behaviors “would materially harm competition” means that the rules are never settled. Administrations differ markedly in their views about what the antitrust laws should forbid, so business planners could never be certain that a product feature or revenue model that is legal today will not be deemed to “materially harm competition” by a future administration with greater solicitude for small rivals and upstarts. Such uncertainty will hinder investment in novel products, services, and business models.
Consider, for example, Google’s investment in the Android mobile operating system. Google makes money from Android—which it licenses to device manufacturers for free—by ensuring that Google’s revenue-generating services (e.g., its search engine and browser) are strongly preferenced on Android products. One administration might believe that this is a procompetitive arrangement, as itcreates a different revenue model for mobile operating systems (as opposed to Apple’s generation of revenue from hardware sales), resulting in both increased choice and lower prices for consumers. A subsequent administration might conclude that the arrangement materially harms competition by making it harder for rival search engines and web browsers to gain market share. It would make scant sense for a covered platform to make an investment like Google did with Android if its underlying business model could be upended by a new administration with de facto power to rewrite the law.
A second problem with having the enforcement agencies determine and redetermine what covered platforms may do is that it effectively transforms the agencies from law enforcers into sectoral regulators. Indeed, the letter authors agree that “the ability of expert agencies to incorporate additional protections in the guidelines” means that “the bill is not a pure antitrust law but also safeguards other benefits to consumers.” They tout that “the complementarity between consumer protection and competition can be addressed in the guidelines.”
Of course, to the extent that the enforcement guidelines address concerns besides competition, they will be less useful for interpreting AICOA’s “material harm to competition” standard; they might deem a practice suspect on non-competition grounds. Moreover, it is questionable whether creating a sectoral regulator for five widely diverse firms is a good idea. The history of sectoral regulation is littered with examples of agency capture, rent-seeking, and other public-choice concerns. At a minimum, Congress should carefully examine the potential downsides of sectoral regulation, install protections to mitigate those downsides, and explicitly establish the sectoral regulator.
Will AICOA Break Popular Products and Services?
Many popular offerings by the platforms covered by AICOA involve self-preferencing, discrimination among business users, or one of the other behaviors the bill presumptively bans.Pre-installation of iPhone apps and services like Siri, for example, involves self-preferencing or discrimination among business users of Apple’s iOS platform. But iPhone consumers value having a mobile device that offers extensive services right out of the box. Consumers love that Google’s search result for an establishment offers directions to the place, which involves the preferencing of Google Maps. And consumers positively adore Amazon Prime, which can provide free expedited delivery because Amazon conditions Prime designation on a third-party seller’s use of Amazon’s efficient, reliable “Fulfillment by Amazon” service—somethingAmazon could not do under AICOA.
The authors of the pro-AICOA letter insist that the law will not ban attractive product features like these. AICOA, they say:
provides a powerful defense that forecloses any thoughtful concern of this sort: conduct otherwise banned under the bill is permitted if it would ‘maintain or substantially enhance the core functionality of the covered platform.’
But the authors’ confidence that this affirmative defense will adequately protect popular offerings is misplaced. The defense is narrow and difficult to mount.
First, it immunizes only those behaviors that maintain or substantially enhance the “core” functionality of the covered platform. Courts would rightly interpret AICOA to give effect to that otherwise unnecessary word, which dictionariesdefine as “the central or most important part of something.” Accordingly, any self-preferencing, discrimination, or other presumptively illicit behavior that enhances a covered platform’s service but not its “central or most important” functions is not even a candidate for the defense.
Even if a covered platform could establish that a challenged practice would maintain or substantially enhance the platform’s core functionality, it would also have to prove that the conduct was “narrowly tailored” and “reasonably necessary” to achieve the desired end, and, for many behaviors, the “le[ast] discriminatory means” of doing so. That is a remarkably heavy burden, and it beggars belief to suppose that business planners considering novel offerings involving self-preferencing, discrimination, or some other presumptively illicit conduct would feel confident that they could make the required showing. It is likely, then, that AICOA would break existing products and services and discourage future innovation.
Of course, Congress could mitigate this concern by specifying that AICOA does not preclude certain things, such as pre-installed apps or consumer-friendly search results. But the legislation would then lose the support of the many interest groups who want the law to preclude various popular offerings that its text would now forbid. Unlike consumers, who are widely dispersed and difficult to organize, the groups and competitors that would benefit from things like stripped-down smartphones, map-free search results, and Prime-less Amazon are effective lobbyists.
Should the US Follow Europe?
Having responded to criticisms of AICOA, the authors of the pro-AICOA letter go on offense. They assert that enactment of the bill is needed to ensure that the United States doesn’t lose ground to Europe, both in regulatory leadership and in innovation. Observing that the European Union’s Digital Markets Act (DMA) has just become law, the authors write that:
[w]ithout [AICOA], the role of protecting competition and innovation in the digital sector outside China will be left primarily to the European Union, abrogating U.S. leadership in this sector.
Moreover, if Europe implements its DMA and the United States does not adopt AICOA, the authors claim:
the center of gravity for innovation and entrepreneurship [could] shift from the U.S. to Europe, where the DMA would offer greater protections to start ups and app developers, and even makers and artisans, against exclusionary conduct by the gatekeeper platforms.
Implicit in the argument that AICOA is needed to maintain America’s regulatory leadership is the assumption that to lead in regulatory policy is to have the most restrictive rules. The most restrictive regulator will necessarily be the “leader” in the sense that it will be the one with the most control over regulated firms. But leading in the sense of optimizing outcomes and thereby serving as a model for other jurisdictions entails crafting the best policies—those that minimize the aggregate social losses from wrongly permitting bad behavior, wrongly condemning good behavior, and determining whether conduct is allowed or forbidden (i.e., those that “minimize the sum of error and decision costs”). Rarely is the most restrictive regulatory regime the one that optimizes outcomes, and as I have elsewhereexplained, the rules set forth in the DMA hardly seem calibrated to do so.
As for “innovation and entrepreneurship” in the technological arena, it would be a seismic shift indeed if the center of gravity were to migrate to Europe, which is currently home tozero of the top 20 global tech companies. (The United States hosts 12; China, eight.)
It seems implausible, though, that imposing a bunch of restrictions on large tech companies that have significant resources for innovation and arescrambling to enter each other’s markets will enhance, rather than retard, innovation. The self-preferencing bans in AICOA and DMA, for example, would prevent Apple from developing its own search engine to compete with Google, as it has apparentlycontemplated. Why would Apple develop its own search engine if it couldn’t preference it on iPhones and iPads? And why would Google have started its shopping service to compete with Amazon if it couldn’t preference Google Shopping in search results? And why would any platform continually improve to gain more users as it neared the thresholds for enhanced duties under DMA or AICOA? It seems more likely that the DMA/AICOA approach will hinder, rather than spur, innovation.
At the very least, wouldn’t it be prudent to wait and see whether DMA leads to a flourishing of innovation and entrepreneurship in Europe before jumping on the European bandwagon? After all, technological innovations that occur in Europe won’t be available only to Europeans. Just as Europeans benefit from innovation by U.S. firms, American consumers will be able to reap the benefits of any DMA-inspired innovation occurring in Europe. Moreover, if DMA indeed furthers innovation by making it easier for entrants to gain footing, even American technology firms could benefit from the law by launching their products in Europe. There’s no reason for the tech sector to move to Europe to take advantage of a small-business-protective European law.
In fact, the optimal outcome might be to have one jurisdiction in which major tech platforms are free to innovate, enter each other’s markets via self-preferencing, etc. (the United States, under current law) and another that is more protective of upstart businesses that use the platforms (Europe under DMA). The former jurisdiction would create favorable conditions for platform innovation and inter-platform competition; the latter might enhance innovation among businesses that rely on the platforms. Consumers in each jurisdiction, however, would benefit from innovation facilitated by the other.
It makes little sense, then, for the United States to rush to adopt European-style regulation. DMA is a radical experiment. Regulatory history suggests that the sort of restrictiveness it imposes retards, rather than furthers, innovation. But in the unlikely event that things turn out differently this time, little harm would result from waiting to see DMA’s benefits before implementing its restrictive approach.
Does AICOA Threaten Platforms’ Ability to Moderate Content and Police Disinformation?
The authors of the pro-AICOA letter conclude by addressing the concern that AICOA “will inadvertently make content moderation difficult because some of the prohibitions could be read… to cover and therefore prohibit some varieties of content moderation” by covered platforms.
The letter authors say that a reading of AICOA to prohibit content moderation is “strained.” They maintain that the act’s requirement of “competitive harm” would prevent imposition of liability based on content moderation and that the act is “plainly not intended to cover” instances of “purported censorship.” They further contend that the risk of judicial misconstrual exists with all proposed laws and therefore should not be a sufficient reason to oppose AICOA.
Each of these points is weak. Section 3(a)(3) of AICOA makes it unlawful for a covered platform to “discriminate in the application or enforcement of the terms of service of the covered platform among similarly situated business users in a manner that would materially harm competition.” It ishardly “strained” to reason that this provision is violated when, say, Google’s YouTube selectively demonetizes a business user for content that Google deems harmful or misleading. Or when Apple removes Parler, but not every other violator of service terms, from its App Store. Such conduct could “materially harm competition” by impeding the de-platformed business’ ability to compete with its rivals.
And it is hard to say that AICOA is “plainly not intended” to forbid these acts when a key supporting senatortouted the bill as a means of policing content moderation andobserved during markup that it would “make some positive improvement on the problem of censorship” (i.e., content moderation) because “it would provide protections to content providers, to businesses that are discriminated against because of the content of what they produce.”
At a minimum, we should expect some state attorneys general to try to use the law to police content moderation they disfavor, and the mere prospect of such legal action could chill anti-disinformation efforts and other forms of content moderation.
Of course, there’s a simple way for Congress to eliminate the risk of what the letter authors deem judicial misconstrual: It could clarify that AICOA’s prohibitions do not cover good-faith efforts to moderate content or police disinformation. Such clarification, however, would kill the bill, asseveral Republican legislators are supporting the act because it restricts content moderation.
The risk of judicial misconstrual with AICOA, then, is not the sort that exists with “any law, new or old,” as the letter authors contend. “Normal” misconstrual risk exists when legislators try to be clear about their intentions but, because language has its limits, some vagueness or ambiguity persists. AICOA’s architects have deliberately obscured their intentions in order to cobble together enough supporters to get the bill across the finish line.
The one thing that all AICOA supporters can agree on is that they deserve credit for “doing something” about Big Tech. If the law is construed in a way they disfavor, they can always act shocked and blame rogue courts. That’s shoddy, cynical lawmaking.
Conclusion
So, I respectfully disagree with Professors Scott Morton, Salop, and Dinielli on AICOA. There is no urgent need to pass the bill right now, especially as we are on the cusp of seeing an AICOA-like regime put to the test. The bill’s central liability standard is overly vague, and its plain terms would break popular products and services and thwart future innovation. The United States should equate regulatory leadership with the best, not the most restrictive, policies. And Congress should thoroughly debate and clarify its intentions on content moderation before enacting legislation that could upend the status quo on that important matter.
For all these reasons, Congress should reject AICOA. And for the same reasons, a future in which AICOA is adopted is extremely unlikely to resemble the Utopian world that Professors Scott Morton, Salop, and Dinielli imagine.
Welcome to the FTC UMC Roundup for the middle of July. As we sit between the Fourth of July and August recess, the first images from the James Webb space telescope are a nice way to put the day-to-day grind of antitrust law into perspective. In part, that’s my way of saying that as Congress rushes towards recess, POTUS is out of the country, and several Senators are fighting Covid (we hope all get well soon), it hasn’t been the busiest week in antitrust law. But it’s also a useful framing for this week’s headline.
This week’s headline: Just as the Webb telescope peers back into the history of the universe, this is a week to look back into recent competition history: the one year anniversary of the President’s Executive Orderon competition policy. Aspen Digital hosted a discussion about the Order with National Economic Council director Brian Deese. As one would expect, the discussion started with brief remarks in which Deese was able to very briefly outline the Order’s very several impacts over the past year.
Deese’s remarks were followed by a Q&A hosted by NYT reporter Cecilia Kang. Kang pressed Deese on a few topics. She asked how the recent Major Questions Doctrine ruling in West Virginia v. EPA affects the administration’s thinking about competition policy. Deese’s response – undoubtedly the correct one – is that the administration is looking for areas where there is bipartisan legislative interest in Congress. She askedwhether the administration would ask Senate leader Chuck Schumer (D-NY) to move on pending antitrust legislation (that is, AICOA); when Deese dodged the question about Schumer, she asked again. Curiously, Deese refused to mention Senator Schumer, instead saying that the administration has been working with the bill’s sponsors, Senator Klobuchar (D-MN) and Chuck Grassley (R-IA). (Ben Brody has a piece on the pressures being brought to bear upon Schumer to act on AICOA.)
Deese’s National Economic Council colleague Tim Wu offered some comments on Deese’s speech on Twitter, explaining that the Executive Order has “become a means of trying ensure that competition policy is in line with our macro-economic policy goals.” “In a sense, the agencies are doing microeconomic competition policy, while the Competition Council has an eye on macro effects, and is setting micro priorities from that perspective.”
Continuing with this week’s lede that there’s not much going on: AICOA continues to go nowhere, fast. Supporters of the bill are lobbying the intelligence community to assuage concerns that it could harm national security interests. A spokesperson for the Office of the Director of National Intelligence responded that “the [Intelligence Community] does not weigh in on the merits of policy options.” Conservative continue to supportAICOA as a tool for cracking down on content moderation policies – contrary to Democratic assurances that it can’t be used in that way. And Access Now has sent a letter to Congress on behalf of various global NGOs arguing that AICOA is necessary to address Big Tech’s human rights violations facilitated by its “reign over the world.” Antitrust law truly is everything to everyone.
Advocacy aside, AICO continues to appear to be dead bill stalling. Cristiano Lima at the Washington Post did a whip call of its own, finding “the number of senators willing to publicly say at this point they back the bills is well short of 60.” Importantly, this includes several senators who had previously publicly supported the bill. Adam Kovacevich walks through the challenging calculus: Senator Klobuchar is focused on getting Republicans to support the bill, and is losing Democratic support along the way. He also screams the loud part out louder: “It’s awfully hard for AICOA backers to claim the bill doesn’t impact content moderation when MAGA conservatives … just come right out and say they’re backing the bill because it would stop Apple/Amazon from banning Parler.”
The irony of it all is mercatus uber alles. The Wall Street Journal is reporting that Amazon may be scaling back its private-label brands.
Is anything going on at the FTC? Surprisingly little. Perhaps everyone’s getting ready for the next open meeting. It’s not yet on the calendar, but rumors are flying that rulemakings could be on the agenda.
A lack of activity, however, won’t keep bad news out of the FTC. In what is truly heartbreaking, if not unsurprising, news, under Chair Khan the FTC has fallen from one of the best to one of the worst federal agencies to work for in the latest “Best Places to Work in the Federal Government.” It’s not just FTC employees who have questions about Khan’s leadership. Leah Nylen reports that the US Chamber of Commerce has sued the FTC, asking for disclosure of information under FOIA that the Commission has refused to provide. The Chamber recently prevailed in its efforts to require the Commission to disclose its operations manual.
What should you be reading and watching during this lazy month of July? Well, you could start with contributions to the Truth on the Market FTC UMC Rulemaking Symposium. We have had recent contributionssummarizingchapters from Dan Crane’s recent book on the topic. These chapters were presented at a recent CCIA/Concurrences conference, recordings of which are also now online. TechFreedom is hosting its 2022 Policy Summit on July 20 and on July 27 Punchbowl is hosting a conversation with Representative Eric Swalwell on “the importance of privacy and security in existing and new technologies.”
Signing off with a recommended deep read: Adam White helps to contextualizeWest Virginia v. EPA and the Major Questions Doctrine in the broader scheme of the Court’s recent jurisprudence. It’s easy for those in the trenches to focus on what individual opinions mean for specific agencies and issues. But these cases are dots in a much larger mosaic of shifting jurisprudential and political theory.
Welcome back to the FTC UMC Roundup! The Senate is back in session and bills are dying. FTC is holding hearings and faith in the agency is dying. The more things change the more they stay the same. Which is a fancy way of saying that despite all the talk of change, little change seems likely. This is never more true than when midterm elections are on the horizon – this is high season for talk of change that will not happen.
This week’s headline is the unexpected death of the Journalism Competition and Preservation Act (JCPA), which seems to have met its fate in committee on Thursday. The JCPA sought to save “local journalism” by allowing select legacy media entities to form cartels to monopolistically negotiate with tech platforms. The expectation yesterday morning was that the bill would sail through committee. Enter Sen. Ted Cruz (R-TX), with an amendment to further help local journalism by limiting platforms’ use of content moderation – leading one of the bill’s chief sponsors, Sen. Amy Klobuchar (D-MN) to withdraw the bill from consideration.
The story here is partly about a bad bill meeting its timely demise – one does not bring “more cartels” as a solution to a competition fight. But the bigger story is about Senator Klobuchar’s ill-fated competition policy efforts and her failure to appreciate the anti-tech dynamic that she has relied on to bring Republican co-sponsors on board. My colleague Ian Adams captured the essential challenge in memetic form:
We’re a week into September, about 60 days from the midterms and three weeks from the end of the fiscal year. Senate Leader Schumer (D.NY) has bigger fish to fry than pushing legislation that will risk costing any Democrats seats. The demise of the JCPA is an object lesson in the politics of Senator Klobuchar’s American Innovation and Choice Online Act (AICOA) – and a preview of its likely fate.
A close contender for this week’s headline could have been the Commercial Surveillance and Data Security Public Forumhosted by the FTC on Thursday. But this charade doesn’t deserve headline status. The online forum, which was billed as a hearing relating to the FTC’s recently-announced a was plagued by technical difficulties from the start – slides not working, speakers on unstable Internet connections, and consistent “am I muted” problems – that are simply amateurish difficulties two years into the COVID-19 pandemic.
But the bigger issue with the forum was that nearly three of its five scheduled hours were dedicated to one-sided panels stacked with panelists favoring FTC regulation. Assuming that the APRM ultimately results in the FTC adopting rules, the Commission is assembling a remarkably strong record to support claims of procedural bias. As I have previously discussed, the APRM itself does not meet the requirements of the Magnusson-Moss Act. Now, anyone challenging whatever rules the FTC may ultimately adopt (about which the ANPR has offered no basis for discussion) will readily be able to point to this hearing to demonstrate the the Commission’s rulemaking process is biased in favor of adopting specific regulations, not neutrally obtaining information to inform its rulemaking process.
There has been plenty of other FTC-related news over the past two weeks.
First, congratulations to Svetlana Gans! In addition to being a recent contributor to this ongoing symposium, Svetlana is the subject of a recent article identifying her as a “leading candidate” to take current commissioner Noah Phillips’s seat after he steps down. Of course, the article is critical of her – but that’s the nature of the appointments game. There are few individuals as qualified for this position as Svetlana. And I’m not just saying that because she has contributed to this symposium – she is a longtime FTC practitioner with deep institutional knowledge of the agency and an impeccable record of experience on antitrust and consumer protection matters.
Second, not many people seem to have noticed this, but: the FTC released its latest five-year plan. The changes between this plan and the previous iteration are subtle but substantial. Most notably, the Commission has replaced its previous focus on protecting “consumers” with a focus on protecting “the public,” and is now focused on “fair competition,” instead of “vibrant competition”. Some agencies, like the Federal Communications Commission, have authority based around a public interest standard. It sounds like FTC Chair Lina Khan is trying to rewrite its UDAP and UMC authority – which Congress and the Courts have long focused on consumer concerns – to focus instead on broader “public interest” standards. One need not invoke major questions to question the propriety of one agency refocusing its strategic priorities around the statutory mandate of its agencies.
Third, Fourth, and Fifth: Walmart is going to war with the FTC; the Senate is going to war with the FTC; and the FTC’s ALJ is going to war with the FTC. Walmart is challenging the FTC’s absurd claim that the company is doing too little to protect consumers from scammers despite the company’s substantial efforts to protect consumers from scammers. With its equal split between Republicans and Democrats and in a preview of what may be to come in a new Congress, the Senate Judiciary Committee is planning to hold a DOJ and FTC oversight hearing. And in a loss for the Commission, the FTC’s ALJ has rejected the FTC’s contention that the Illumina/Grail merger would harm competition – a decision that will likely be appealed to and overturned by the FTC Commissioners, in a nice rebuke the the legitimacy of the agency’s decision-making process (see, inter alia, the pending Axon litigation before the Supreme Court).
It is not wholly bad news for the FTC over the past two weeks. The Commission has only just startedscrutinizing Amazon’s proposed acquisition of iRobot, so that case isn’t faltering yet. On the other hand, Kovacha, a firm that the FTC has accused of providing “precise geolocation data associated with unique persistent identifiers” in a way that establishes a unfair or deceptive acts or practices violation, preemptively brought suit against the FTC arguing that the FTC’s claims were unconstitutional. Kovacha smartly positioned its claims alongside the pending Axon litigation – which will be hear by the Supreme Court on November 7 – positioning its claims alongside the most potent recent challenges to the FTC’s Constitutional structure or authority.
This week’s closing note is that Queen Elizabeth II has passed away. As she moves on to the unknown country, it seems that we have lost one of the last figures of the twentieth century’s global order. To our British friends, God save your King – and may we all take a moment to reflect on the value of stability in our economic and political order tempered by the importance and inevitability of the sea of change.
Happy Independence Day Week! Having started off with the holiday, this has been a relatively slow week on the antitrust front in the United States. But never fear, Europe is here to help fill out the weekly news roundup. And, even on a slow week there is plenty in the news domestically. Perhaps more important: everyone working on FTC and antitrust issues should take advantage of these respites when the come – any calm most likely is a harbinger of a storm to come.
This week’s headline is the passage of the Digital Markets Act (DMA)and Digital Services Act (DSA) by the European Parliament. The DMA has often been compared to the American Innovation and Choice Online Act (AICOA) – as of this week their biggest difference is that the DMA now is law while AICOA’s fate continues to appear fraught. For more details on the substance the DMA, we’ve discussed it on here on Truth on the Market, and both Axios and the Chamber of Commerce offer overviews.
Also on the European front, Europeans are beginning to reckon with the fact that soon Facebook may cease operations in Europe due to the bloc’s privacy rules. For pro-privacy regulators this may be viewed as a win. The rest of Europe was unavailable for comment (likely due to European privacy laws).
Back in the states the biggest news continues to be fallout from the Supreme Court’s embrace of the major questions doctrine. After a few days of misreporting on the opinion in West Virginia v. EPA as preventing the EPA from regulating greenhouse gasses, the media is now realizing that the import of the opinion goes to broader questions of the administrative state – and that it could impact tech regulation in particular.
Sophisticated thinkers have seen the potential impact of the case since before it was decided. In the days since they have been exploring the scope of the ruling and how the lower courts will implement it, discussing its implications for big tech, debating whether it will or will notlimit the FCC’s net neutrality authority (answer: it will). And as numerous posts made as part of this TOTM FTC UMC Symposium have argued, it will likely substantially limit the FTC’s UMC rulemaking authority.
One thing I have wondered is how agencies will respond to the MQD in their rulemaking. Agencies often discuss the importance of their rules in an effort to justify them. Tom Wheeler was fond of discussing the Internet as the “most important network in the history of Man.” Arguing that the costs of regulatory action are very high helps to sell the benefits of regulation as substantial. But now, arguing that the costs of inaction are high might also make it easier to argue that the question being addressed in a major one – of vast political or economic significance. Will we start to see agencies downplay the importance of their work?
As usual, we can’t not have some updates on AICOA. The most salient update may be the lack of update. While Senator Klobuchar (D-MN) continues to push the bill forward, Leader Schumer (D-NY) has no apparent interest in bringing it to the floor. And even if it gets through the Senate, there may be trouble waitingin the House? Beyond that, this week saw both Zach Graves get off the fence and speak out against AICOA.
Quick hits: Protocolreports the CFPB is hoping to hire 25 technologists to help it wage war on the tech industry. Bloomberg reports the FTC is toying with the Robinson-Patman Act. And the FTC brings another right-to-repair action, this time against Weber, to prohibit warranties that are voided by independent repairs.
What you missed, What to watch? Last week’s Federalist Society discussion of Biden’s Antitrust Agenda: Mission Creep or Mission Achieved was a must-watch. Hope you didn’t miss it! If you did, you can redeem yourself by making it to AEI’s discussion with FTC Commissioner Noah Phillips on Crossing the Consumer Welfare Rubicon.
Fireworks came a bit early this year. Between the Supreme Court’s end-of-term decisions and this week’s January 6th Committee hearings, it wasn’t a week with much antitrust news coming out of either the FTC or Congress. But the Supreme Court’s made sure to keep things exciting: the opinion in West Virginia v. EPAcase will reshape the regulatory landscape for years to come, including the world of antitrust.
This week’s headline is the WV v. EPA opinion. Nominally about the EPA’s efforts to regulate coal power plants, the opinion is really about the so-called major questions doctrine (MQD). Summarizing in a sentence a case that will be the subject of hundreds of law review articles and years of clarifying litigation, the MQD says that agencies can’t enact regulations of vast political or economic significance unless Congress clearly delegates them the authority and tools to do so.
This outcome isn’t surprising – but it is nonetheless a big deal. For some general discussion, you could do worse than listening to Corbin Barthold and Berin Szóka dissecting the opinion in real-time. Focusing specifically on the FTC, commentators anticipating the ruling have argued that the MQD could substantially curtail the FTC’s UMC authority. Now that we have the opinion, that outcome seems likely confirmed.
The contours of the major questions doctrine are unclear. That is one of the most trenchant criticisms of the doctrine. But the Court’s opinion points to several factors beyond merely relating to a rule of “vast political or economic significance” (which remains the defining characteristic). Claiming new, or only rarely used, regulatory authority suggests a major question, especially if that authority would mark a “transformative expansion” in the agency’s authority. If the power is based in vague language or “ancillary provisions” of a statute suggests a major question. Or Congress having “conspicuously and repeatedly declined” to regulate the issue through legislation suggests a major question. All of these factors apply in the context of the FTC using its UMC authority, based the ancillary rulemaking authority of Section 6(g), to transformatively expand its authority to address any number of issues that are believed to be subject to FTC interest.
At the same time, those concerned about expansive UMC authority should not be too quick to think the UMC rulemaking project dead. The EPA and many other agencies to which the MQD is likely to apply, such as the FCC, have narrower scope than the FTC. While broad, the EPA’s authority is tailored to specific environmental issues; the FCC’s authority is tailored to specific communications technologies. Arguably, the FTC’s authority is more general than other agencies to which the MQD will clearly apply – unfair methods of competition can occur in any aspect of the economy.
Realistically, however, the prospects of the FTC surviving a MQD challenge if it pushes aggressive use of its UMC authority are slim. The bareness of the Section 6(g) rulemaking authority is challenge enough. But perhaps even more important is the theory underlying WV v. EPA and the MQD. Justice Roberts’s majority opinion invokes both separation of powers and legislative intent concerns. The MQD is about both whether Congress meant to, and whether it was appropriate for it to, delegate broad authority to an agency. It seems clear that if Congress wants to delegate substantial power to an agency that the Court expects Congress to be very clear about what that power is and how it is to be used. It is not enough to say “EPA, you regulate environmental stuff; FTC you regulate competition stuff.”
Turning now to other news. Can we call AICOA dead yet? Probably not, but time for Sen. Amy Klobuchar (D-MN) to save her American Innovation and Choice Online Act runs low. In addition to the academics, advocates, and Democratic senators (see last week’s Roundup for those details), social justice groups have joined the chorus expressing concerns about how AICOA might limit platforms’ ability to engage in content moderation. Alden Abbott has also brought focus to largely overlooked rule of law concerns raised by AICOA.
Speaking of other dead things, ADPPA seems to be spinning in its own grave. Late last week Sen. Maria Cantwell (D-WA), chair of the committee the bill would need to go through, said she has no plans to consider the bill in committee – and that Sen. Chuck Schumer (D-NY) has no interest in bringing it to the Senate floor. That sounds pretty dead. But the Court’s Dobbs opinion has made it deader. Over the weekend, a spokesperson for Cantwell “does not adequately protect against the privacy threats posed by a post-Roe world.”
So, it seems likely the FTC remains the only potential privacy bulwark to which privacy advocates can turn. President Biden is already asking them to address Dobbs-related privacy issues. But query: would an FTC effort to develop rules to address privacy concerns present a major question – these are issues of longstanding Congressional debate and substantial economic and political importance? (I expect not; but I expect the issue could get into court.)
Some quick hits, literally. Today one forgets about the CFPB or its director, Rohit Chopra, at their peril. The Chamber of Commerce is trying to change this. ITIF’s Julie Carlson talks aboutthe meteoric rise and fall of Lina Khan. The fall seems premature, but the WV v. EPA has certainly brought the ground closer. It may be a less literal hit, perhaps, but MLB’s antitrust exemption may be in its last innings. And where’s the beef? Price stabilization legislation is moving through the Senate Ag Committee.
Some parting thoughts? If you insist. Last week we mentioned this week’s Concurrences conference on the Rulemaking Authority of the FTC. It was a great event! Among other things, it introduced Dan Crane’s new, must-read, bookon the topic, featuring chapters by a who’s-who of writers in the field. Several authors have previously contributed to the Truth on the Market symposium on the topic (hey, this post is part of that, too!) – and in the coming week we will have some more contributions from those authors.
Finally, a Friday afternoon read: Last week was Microsoft Internet Explorer’s last as a going concern. What can those concerned about big tech learn from the browser wars? Find out here.
The FTC UMC Roundup, part of the Truth on the Market FTC UMC Symposium, is a weekly roundup of news relating to the Federal Trade Commission’s antitrust and Unfair Methods of Competition authority. If you would like to receive this and other posts relating to these topics, subscribe to the RSS feed here. If you have news items you would like to suggest for inclusion, please mail them to us at ghurwitz@laweconcenter.org and/or kfierro@laweconcenter.org.
[TOTM: The following is part of a digital symposium by TOTM guests and authors on Antitrust’s Uncertain Future: Visions of Competition in the New Regulatory Landscape. Information on the authors and the entire series of posts is available here.]
Much ink has been spilled regarding the potential harm to the economy and to the rule of law that could stem from enactment of the primary federal antitrust legislative proposal, the American Innovation and Choice Online Act (AICOA) (see here). AICOA proponents, of course, would beg to differ, emphasizing the purported procompetitive benefits of limiting the business freedom of “Big Tech monopolists.”
There is, however, one inescapable reality—as night follows day, passage of AICOA would usher in an extended period of costly litigation over the meaning of a host of AICOA terms. As we will see, this would generate business uncertainty and dampen innovative conduct that might be covered by new AICOA statutory terms.
The history of antitrust illustrates the difficulties inherent in clarifying the meaning of novel federal statutory language. It was not until 21 years after passage of the Sherman Antitrust Act that the Supreme Court held that Section 1 of the act’s prohibition on contracts, combinations, and conspiracies “in restraint of trade” only covered unreasonable restraints of trade (see Standard Oil Co. of New Jersey v. United States, 221 U.S. 1 (1911)). Furthermore, courts took decades to clarify that certain types of restraints (for example, hardcore price fixing and horizontal market division) were inherently unreasonable and thus per se illegal, while others would be evaluated on a case-by-case basis under a “rule of reason.”
In addition, even far more specific terms related to exclusive dealing, tying, and price discrimination found within the Clayton Antitrust Act gave rise to uncertainty over the scope of their application. This uncertainty had to be sorted out through judicial case-law tests developed over many decades.
Even today, there is no simple, easily applicable test to determine whether conduct in the abstract constitutes illegal monopolization under Section 2 of the Sherman Act. Rather, whether Section 2 has been violated in any particular instance depends upon the application of economic analysis and certain case-law principles to matter-specific facts.
As is the case with current antitrust law, the precise meaning and scope of AICOA’s terms will have to be fleshed out over many years. Scholarly critiques of AICOA’s language underscore the seriousness of this problem.
In its April 2022 public comment on AICOA, the American Bar Association (ABA) Antitrust Law Section explains in some detail the significant ambiguities inherent in specific AICOA language that the courts will have to address. These include “ambiguous terminology … regarding fairness, preferencing, materiality, and harm to competition on covered platforms”; and “specific language establishing affirmative defenses [that] creates significant uncertainty”. The ABA comment further stresses that AICOA’s failure to include harm to the competitive process as a prerequisite for a statutory violation departs from a broad-based consensus understanding within the antitrust community and could have the unintended consequence of disincentivizing efficient conduct. This departure would, of course, create additional interpretive difficulties for federal judges, further complicating the task of developing coherent case-law principles for the new statute.
In a somewhat similar vein, Stanford Law School Professor (and former acting assistant attorney general for antitrust during the Clinton administration) Douglas Melamed complains that:
[AICOA] does not include the normal antitrust language (e.g., “competition in the market as a whole,” “market power”) that gives meaning to the idea of harm to competition, nor does it say that the imprecise language it does use is to be construed as that language is construed by the antitrust laws. … The bill could be very harmful if it is construed to require, not increased market power, but simply harm to rivals.
In sum, ambiguities inherent in AICOA’s new terminology will generate substantial uncertainty among affected businesses. This uncertainty will play out in the courts over a period of years. Moreover, the likelihood that judicial statutory constructions of AICOA language will support “efficiency-promoting” interpretations of behavior is diminished by the fact that AICOA’s structural scheme (which focuses on harm to rivals) does not harmonize with traditional antitrust concerns about promoting a vibrant competitive process.
Knowing this, the large high-tech firms covered by AICOA will become risk averse and less likely to innovate. (For example, they will be reluctant to improve algorithms in a manner that would increase efficiency and benefit consumers, but that might be seen as disadvantaging rivals.) As such, American innovation will slow, and consumers will suffer. (See here for an estimate of the enormous consumer-welfare gains generated by high tech platforms—gains of a type that AICOA’s enactment may be expected to jeopardize.) It is to be hoped that Congress will take note and consign AICOA to the rubbish heap of disastrous legislative policy proposals.
[TOTM: The following is part of a digital symposium by TOTM guests and authors on Antitrust’s Uncertain Future: Visions of Competition in the New Regulatory Landscape. Information on the authors and the entire series of posts is available here.]
Things are heating up in the antitrust world. There is considerable pressure to pass the American Innovation and Choice Online Act (AICOA) before the congressional recess in August—a short legislative window before members of Congress shift their focus almost entirely to campaigning for the mid-term elections. While it would not be impossible to advance the bill after the August recess, it would be a steep uphill climb.
But whether it passes or not, some of the damage from AICOA may already be done. The bill has moved the antitrust dialogue that will harm innovation and consumers. In this post, I will first explain AICOA’s fundamental flaws. Next, I discuss the negative impact that the legislation is likely to have if passed, even if courts and agencies do not aggressively enforce its provisions. Finally, I show how AICOA has already provided an intellectual victory for the approach articulated in the European Union (EU)’s Digital Markets Act (DMA). It has built momentum for a dystopian regulatory framework to break up and break into U.S. superstar firms designated as “gatekeepers” at the expense of innovation and consumers.
The Unseen of AICOA
AICOA’s drafters argue that, once passed, it will deliver numerous economic benefits. Sen. Amy Klobuchar (D-Minn.)—the bill’s main sponsor—has stated that it will “ensure small businesses and entrepreneurs still have the opportunity to succeed in the digital marketplace. This bill will do just that while also providing consumers with the benefit of greater choice online.”
Section 3 of the bill would provide “business users” of the designated “covered platforms” with a wide range of entitlements. This includes preventing the covered platform from offering any services or products that a business user could provide (the so-called “self-preferencing” prohibition); allowing a business user access to the covered platform’s proprietary data; and an entitlement for business users to have “preferred placement” on a covered platform without having to use any of that platform’s services.
These entitlements would provide non-platform businesses what are effectively claims on the platform’s proprietary assets, notwithstanding the covered platform’s own investments to collect data, create services, and invent products—in short, the platform’s innovative efforts. As such, AICOA is redistributive legislation that creates the conditions for unfair competition in the name of “fair” and “open” competition. It treats the behavior of “covered platforms” differently than identical behavior by their competitors, without considering the deterrent effect such a framework will have on consumers and innovation. Thus, AICOA offers rent-seeking rivals a formidable avenue to reap considerable benefits at the expense of the innovators thanks to the weaponization of antitrust to subvert, not improve, competition.
In mandating that covered platforms make their data and proprietary assets freely available to “business users” and rivals, AICOA undermines the underpinning of free markets to pursue the misguided goal of “open markets.” The inevitable result will be the tragedy of the commons. Absent the covered platforms having the ability to benefit from their entrepreneurial endeavors, the law no longer encourages innovation. As Joseph Schumpeter seminally predicted: “perfect competition implies free entry into every industry … But perfectly free entry into a new field may make it impossible to enter it at all.”
To illustrate, if business users can freely access, say, a special status on the covered platforms’ ancillary services without having to use any of the covered platform’s services (as required under Section 3(a)(5)), then platforms are disincentivized from inventing zero-priced services, since they cannot cross-monetize these services with existing services. Similarly, if, under Section 3(a)(1) of the bill, business users can stop covered platforms from pre-installing or preferencing an app whenever they happen to offer a similar app, then covered platforms will be discouraged from investing in or creating new apps. Thus, the bill would generate a considerable deterrent effect for covered platforms to invest, invent, and innovate.
AICOA’s most detrimental consequences may not be immediately apparent; they could instead manifest in larger and broader downstream impacts that will be difficult to undo. As the 19th century French economist Frederic Bastiat wrote: “a law gives birth not only to an effect but to a series of effects. Of these effects, the first only is immediate; it manifests itself simultaneously with its cause—it is seen. The others unfold in succession—they are not seen it is well for, if they are foreseen … it follows that the bad economist pursues a small present good, which will be followed by a great evil to come, while the true economist pursues a great good to come,—at the risk of a small present evil.”
To paraphrase Bastiat, AICOA offers ill-intentioned rivals a “small present good”–i.e., unconditional access to the platforms’ proprietary assets–while society suffers the loss of a greater good–i.e., incentives to innovate and welfare gains to consumers. The logic is akin to those who advocate the abolition of intellectual-property rights: The immediate (and seen) gain is obvious, concerning the dissemination of innovation and a reduction of the price of innovation, while the subsequent (and unseen) evil remains opaque, as the destruction of the institutional premises for innovation will generate considerable long-term innovation costs.
Fundamentally, AICOA weakens the benefits of scale by pursuing vertical disintegration of the covered platforms to the benefit of short-term static competition. In the long term, however, the bill would dampen dynamic competition, ultimately harming consumer welfare and the capacity for innovation. Themeasure’s opportunity costs will prevent covered platforms’ innovations from benefiting other business users or consumers. They personify the “unseen,” as Bastiat put it: “[they are] always in the shadow, and who, personifying what is not seen, [are] an essential element of the problem. [They make] us understand how absurd it is to see a profit in destruction.”
The costs could well amount to hundreds of billions of dollars for the U.S. economy, even before accounting for the costs of deterred innovation. The unseen is costly, the seen is cheap.
A New Robinson-Patman Act?
Most antitrust laws are terse, vague, and old: The Sherman Act of 1890, the Federal Trade Commission Act, and the Clayton Act of 1914 deal largely in generalities, with considerable deference for courts to elaborate in a common-law tradition on the specificities of what “restraints of trade,” “monopolization,” or “unfair methods of competition” mean.
In 1936, Congress passed the Robinson-Patman Act, designed to protect competitors from the then-disruptive competition of large firms who—thanks to scale and practices such as price differentiation—upended traditional incumbents to the benefit of consumers. Passed after “Congress made no factual investigation of its own, and ignored evidence that conflicted with accepted rhetoric,” the law prohibits price differentials that would benefit buyers, and ultimately consumers, in the name of less vigorous competition from more efficient, more productive firms. Indeed, under the Robinson-Patman Act, manufacturers cannot give a bigger discount to a distributor who would pass these savings onto consumers, even if the distributor performs extra services relative to others.
Former President Gerald Ford declared in 1975 that the Robinson-Patman Act “is a leading example of [a law] which restrain[s] competition and den[ies] buyers’ substantial savings…It discourages both large and small firms from cutting prices, making it harder for them to expand into new markets and pass on to customers the cost-savings on large orders.” Despite this, calls to amend or repeal the Robinson-Patman Act—supported by, among others, competition scholars like Herbert Hovenkamp and Robert Bork—have failed.
In the 1983 Abbott decision, Justice Lewis Powell wrote: “The Robinson-Patman Act has been widely criticized, both for its effects and for the policies that it seeks to promote. Although Congress is aware of these criticisms, the Act has remained in effect for almost half a century.”
Nonetheless, the act’s enforcement dwindled, thanks to wise reactions from antitrust agencies and the courts. While it is seldom enforced today, the act continues to create considerable legal uncertainty, as it raises regulatory risks for companies who engage in behavior that may conflict with its provisions. Indeed, many of the same so-called “neo-Brandeisians” who support passage of AICOA also advocate reinvigorating Robinson-Patman. More specifically, the new FTC majority has expressed that it is eager to revitalizeRobinson-Patman, even as the law protects less efficient competitors. In other words, the Robinson-Patman Act is a zombie law: dead, but still moving.
Even if the antitrust agencies and courts ultimately follow the same path of regulatory and judicial restraint on AICOA that they have on Robinson-Patman, the legal uncertainty its existence will engender will act as a powerful deterrent on disruptive competition that dynamically benefits consumers and innovation. In short, like the Robinson-Patman Act, antitrust agencies and courts will either enforce AICOA–thus, generating the law’s adverse effects on consumers and innovation–or they will refrain from enforcing AICOA–but then, the legal uncertainty shall lead to unseen, harmful effects on innovation and consumers.
For instance, the bill’s prohibition on “self-preferencing” in Section 3(a)(1) will prevent covered platforms from offering consumers new products and services that happen to compete with incumbents’ products and services. Self-preferencing often is a pro-competitive, pro-efficiency practice that companies widely adopt—a reality that AICOA seems to ignore.
Would AICOA prevent, e.g., Apple from offering a bundled subscription to Apple One, which includes Apple Music, so that the company can effectively compete with incumbents like Spotify? As with Robinson-Patman, antitrust agencies and courts will have to choose whether to enforce a productivity-decreasing law, or to ignore congressional intent but, in the process, generate significant legal uncertainties.
Judge Bork once wrote that Robinson-Patman was “antitrust’s least glorious hour” because, rather than improving competition and innovation, it reduced competition from firms who happen to be more productive, innovative, and efficient than their rivals. The law infamously protected inefficient competitors rather than competition. But from the perspective of legislative history perspective, AICOA may be antitrust’s new “least glorious hour.” If adopted, it will adversely affect innovation and consumers, as opportunistic rivals will be able to prevent cost-saving practices by the covered platforms.
As with Robinson-Patman, calls to amend or repeal AICOA may follow its passage. But Robinson-Patman Act illustrates the path dependency of bad antitrust laws. However costly and damaging, AICOA would likely stay in place, with regular calls for either stronger or weaker enforcement, depending on whether the momentum shifts from populist antitrust or antitrust more consistent with dynamic competition.
Victory of the Brussels Effect
The future of AICOA does not bode well for markets, either from a historical perspective or from a comparative-law perspective. The EU’s DMA similarly targets a few large tech platforms but it isbroader, harsher, and swifter. In the competition between these two examples of self-inflicted techlash, AICOA will pale in comparison with the DMA. Covered platforms will be forced to align with theDMA’s obligations and prohibitions.
Consequently, AICOA is a victory of the DMA and of the Brussels effect in general. AICOA effectively crowns the DMA as the all-encompassing regulatory assault on digital gatekeepers. While members of Congress have introduced numerous antitrust bills aimed at targeting gatekeepers, the DMA is the one-stop-shop regulation that encompasses multiple antitrust bills and imposes broader prohibitions and stronger obligations on gatekeepers. In other words, the DMA outcompetes AICOA.
Commentators seldom lament the extraterritorial impact of European regulations. Regarding regulating digital gatekeepers, U.S. officials should have pushed back against the innovation-stifling, welfare-decreasing effects of the DMA on U.S. tech companies, in particular, and on U.S. technological innovation, in general. To be fair, a few U.S. officials, such as Commerce Secretary Gina Raimundo, didvoice opposition to the DMA. Indeed, well-aware of the DMA’s protectionist intent and its potential tobreak up and break into tech platforms, Raimundoexpressed concerns that antitrust should not be about protecting competitors and deterring innovation but rather about protecting the process of competition, however disruptive may be.
The influential neo-Brandeisians and radical antitrust reformers, however,lashed out at Raimundo andeffectively shamed the Biden administration into embracing the DMA (and its sister regulation, AICOA). Brussels did not have to exert its regulatory overreach; the U.S. administration happily imports and emulates European overregulation. There is no better way for European officials to see their dreams come true: a techlash against U.S. digital platforms that enjoys the support of local officials.
In that regard, AICOA has already played a significant role in shaping the intellectual mood in Washington and in altering the course of U.S. antitrust. Members of Congress designed AICOA along the linespioneered by the DMA. Sen. Klobuchar has argued that America should emulate European competition policy regarding tech platforms. Lina Khan, now chair of the FTC, co-authoredthe U.S. House Antitrust Subcommittee report, which recommended adopting the European concept of “abuse of dominant position” in U.S. antitrust. In her current position, Khan nowpraises the DMA. Tim Wu, competition counsel for the White House,has praised European competition policy and officials. Indeed, the neo-Brandeisians’ have not only praised the European Commission’s fines against U.S. tech platforms (despiteearly criticisms from former President Barack Obama) but have more dramatically called for the United States to imitate the European regulatory framework.
In this regulatory race to inefficiency, the standard is set in Brussels with the blessings of U.S. officials. Not even the precedent set by the EU’s General Data Protection Regulation (GDPR) fully captures the effects the DMA will have. Privacy laws passed by U.S. states’ privacy have mostly reacted to the reality of the GDPR. With AICOA, Congress is proactively anticipating, emulating, and welcoming the DMA before it has even been adopted. The intellectual and policy shift is historical, and so is the policy error.
AICOA and the Boulevard of Broken Dreams
AICOA is a failure similar to the Robinson-Patman Act and a victory for the Brussels effect and the DMA. Consumers will be the collateral damages, and the unseen effects on innovation will take years before they materialize. Calls for amendments and repeals of AICOA are likely to fail, so that the inevitable costs will forever bear upon consumers and innovation dynamics.
AICOA illustrates the neo-Brandeisian opposition to large innovative companies. Joseph Schumpeter warned against such hostility and its effect on disincentivizing entrepreneurs to innovate when he wrote:
Faced by the increasing hostility of the environment and by the legislative, administrative, and judicial practice born of that hostility, entrepreneurs and capitalists—in fact the whole stratum that accepts the bourgeois scheme of life—will eventually cease to function. Their standard aims are rapidly becoming unattainable, their efforts futile.
President William Howard Taft once said, “the world is not going to be saved by legislation.” AICOA will not save antitrust, nor will consumers. To paraphrase Schumpeter, the bill’s drafters “walked into our future as we walked into the war, blindfolded.” AICOA’s intentions to deliver greater competition, a fairer marketplace, greater consumer choice, and more consumer benefits will ultimately scatter across the boulevard of broken dreams.
The Baron de Montesquieu once wrote that legislators should only change laws with a “trembling hand”:
It is sometimes necessary to change certain laws. But the case is rare, and when it happens, they should be touched only with a trembling hand: such solemnities should be observed, and such precautions are taken that the people will naturally conclude that the laws are indeed sacred since it takes so many formalities to abrogate them.
AICOA’s drafters had a clumsy hand, coupled with what Friedrich Hayek would call “a pretense of knowledge.” They were certain to do social good and incapable of thinking of doing social harm. The future will remember AICOA as the new antitrust’s least glorious hour, where consumers and innovation were sacrificed on the altar of a revitalized populist view of antitrust.
It increasingly appears that the push to pass Sen. Amy Klobuchar’s American Innovation and Choice Online Act (AICOA) will go down to the wire, with a vote potentially taking place sometime before Congress leaves for its August recess.
Given the uncertainty surrounding this massive legislative project, this Truth on the Market symposium examines the possible future(s) of digital competition in ways somewhat different from those we usually publish.
Contributors were asked to write short pieces about what they think the world might look like—for better and/or worse—under regulations such as AICOA and the European Union’s Digital Markets Act (as well as other regulations that might prohibit self-preferencing or mandate interoperability), or the implications of a future world where such regulations are absent, and where antitrust laws have been relaxed.
Some of the pieces are traditional, scholarly blog posts; others have chosen different literary genres to explore this imagined future, such as short stories, parables, sci-fi inspired pieces—even poems or song lyrics.
The symposium pieces will be posted over the course of the next few days.
Confirmed Participants
As in the past (see examples of previous TOTM blog symposia here), we’ve lined up an outstanding and diverse group of scholars to discuss these issues, including:
Welcome to the FTC UMC Roundup for June 17, 2022. This week’s roundup is a bit shorter – but only because your narrator would rather be out climbing mountains in Squamish, BC, than reading or writing about Sen. Amy Klobuchar’s (D-MN) pretty bad week. From where I sit, me climbing a multipitch 5.13 mountain looks quite a bit more likely than Sen. Klobuchar charting a path for the American Innovation and Choice Online Act (AICOA) to become law.
This week’s headline is the seeming demise of AICOA. That’s a surprising headline given where the week started: John Oliver’s (D-HBO) latest episode of Last Week Tonight focused on Tech Monopolies. And the weight of Oliver can make legislative initiatives such as this a fait accompli. My colleague Dirk Auer does a nice job dissecting the episode and discussing mistakes he sees in Oliver’s analysis. But Dirk, like Oliver, does miss perhaps the most important point. Oliver notes in the episode that AICOA is a bipartisan bill, and marvels at the novelty of seeing Sen. Josh Hawley (R-MO) co-sponsoring a bill with Sen. Klobuchar. If only Oliver had slightly better journalistic chops, he might have thought to ask “Why? Why in the world is Josh Hawley on team Klobuchar?”
The answer to this question explains this week’s seeming collapse of AICOA. Hawley, along with most other Republicans who support AICOA, supports the bill because he believes it limits platforms’ ability to engage in content moderation. The bill’s Democrat champions have downplayed this concern. But with academics and activists alike drawing attention to this concern, it has now taken center stage. This week four Democratic Senators asked Senator Klobuchar to amend AICOA to expressly make clear that it does not limit content moderation practices.
The problem with this? Well, Republicans are making pretty clear that their real concern is with content moderation. A large group of Republican Senators, let by Sen. John Thune (R-SD) have introduce the Political BIAS Emails Act, which would prohibit platforms from “censoring or discriminating against political emails.” I have even heard some speculation that Republicans will push for the Political BIAS Emails Act to be merged with AICOA – but note the lack of a hyperlink to support that speculation.
In any event, Sen. Klobuchar seems to be in the center of a circular firing squad. Her Democratic allies demand she make clear that AICOA does not limit content moderation and her Republican frenemies demand that she maintain the possibility that it does. Given that she can’t lose many of either, it seems unlikely she can keep both. Of course, last time Sen. Klobuchar tried to fix problems with AICOA, transparently trying to buy support by excluding favored industries, she failed to address any of the bill’s substantive flaws.
At the FTC
Senator Klobuchar’s bad week may be making FTC Chair Lina Khan feel better about her bad week. Last week was the Chair Khan press tour, with interviews given to a half dozen or so of the tipity-top of the tech reporting aristocracy. This week’s press coverage, however, focused on the management crisis facing the agency and the staff departures that have resulted. No matter your views on Chair Khan’s policies these are tragic stories. Almost all antitrust commentators want the FTC to be a successful agency, and – as with the rest of the government – that success is built upon the work and dedication of the career staff.
The substantive point to be made is to reflect on the different roles between the FTC and DOJ in “making law” through litigation. Chair Khan wants to use aggressive enforcement to make new law – even if that means asking staff to bring cases that believe are not supported by current law – but it is a legitimately hard question whether an agency empowered by Congress to enforce a statute authored by Congress should view itself as a common law enforcer that develops law through litigation. The common law may develop through litigation, but regulatory law is more a creature of legislation. At the same time, antitrust law is often thought of as one of the curious few remaining creatures of federal common law.
Some Quick Hits
Not all cases result in litigation. In the past weeks the FTC has announced that it would challenge multiple hospital mergers. This week, several ofthose mergers have been called off.
Perhaps the biggest straight-up antitrust news this week was Qualcomm’s successful appeal of DG Comp’s billion euro fine for exclusive conduct. The court faulted DG Comp on both procedural and – more importantly – substantive grounds. As Nicolas Petit explains, the factual findings in the case showed that Apple had no alternative to using Qualcomm’s products – how then could Qualcomm have engaged in “exclusionary” conduct? Exclusionary of whom? Santa Clause? The Easter Bunny? For European readers, the Cadbury Bunny? Those are all fictional characters – and harm cannot be to a fictional party.
Coming in somewhat below the radar is the Supreme Court’s opinion in American Hospital Association v. Becerra. Chris Walker has a nice write-up of the case at the Notice & Comment blog. This case had been framed to create an opportunity for the Court to substantially narrow the Chevron doctrine – an opportunity that the court seemingly did not take up. In the opinion below, the DC Circuit had affirmed an agency action on Chevron grounds, giving substantial weight to the policy rationale advanced by the agency to uphold the agency’s reading of its statute. The Supreme Court, in an opinion that didn’t mention Chevron or deference a single time, interpreted the statute on its own and came to a conclusion based on that reading of the statute. Arguably, this opinion leaves Chevron unscathed; arguably, this opinion narrows Chevron to truly ambiguous statutory language and not merely language that can be tortured to support tortured policy-motivated readings.
This week’s reads: It’s Friday. It’s not a Supreme Court opinion day. It’s not a January 6th Select Committee hearing day. If you’re looking for something to keep you busy on your lunch break, you could do much worse than reading Richard Pierce’s caution about abandoning antitrust principle to fight inflation. And Ben Brody takes a step back to offer a big picture piece on Khan’s FTC.
The FTC UMC Roundup, part of the Truth on the Market FTC UMC Symposium, is a weekly roundup of news relating to the Federal Trade Commission’s antitrust and Unfair Methods of Competition authority. If you would like to receive this and other posts relating to these topics, subscribe to the RSS feed here. If you have news items you would like to suggest for inclusion, please mail them to us at ghurwitz@laweconcenter.org and/or kfierro@laweconcenter.org.
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