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Democratic leadership of the House Judiciary Committee have leaked the approach they plan to take to revise U.S. antitrust law and enforcement, with a particular focus on digital platforms. 

Broadly speaking, the bills would: raise fees for larger mergers and increase appropriations to the FTC and DOJ; require data portability and interoperability; declare that large platforms can’t own businesses that compete with other businesses that use the platform; effectively ban large platforms from making any acquisitions; and generally declare that large platforms cannot preference their own products or services. 

All of these are ideas that have been discussed before. They are very much in line with the EU’s approach to competition, which places more regulation-like burdens on big businesses, and which is introducing a Digital Markets Act that mirrors the Democrats’ proposals. Some Republicans are reportedly supportive of the proposals, which is surprising since they mean giving broad, discretionary powers to antitrust authorities that are controlled by Democrats who take an expansive view of antitrust enforcement as a way to achieve their other social and political goals. The proposals may also be unpopular with consumers if, for example, they would mean that popular features like integrating Maps into relevant Google Search results becomes prohibited.

The multi-bill approach here suggests that the committee is trying to throw as much at the wall as possible to see what sticks. It may reflect a lack of confidence among the proposers in their ability to get their proposals through wholesale, especially given that Amy Klobuchar’s CALERA bill in the Senate creates an alternative that, while still highly interventionist, does not create ex ante regulation of the Internet the same way these proposals do.

In general, the bills are misguided for three main reasons. 

One, they seek to make digital platforms into narrow conduits for other firms to operate on, ignoring the value created by platforms curating their own services by, for example, creating quality controls on entry (as Apple does on its App Store) or by integrating their services with related products (like, say, Google adding events from Gmail to users’ Google Calendars). 

Two, they ignore the procompetitive effects of digital platforms extending into each other’s markets and competing with each other there, in ways that often lead to far more intense competition—and better outcomes for consumers—than if the only firms that could compete with the incumbent platform were small startups.

Three, they ignore the importance of incentives for innovation. Platforms invest in new and better products when they can make money from doing so, and limiting their ability to do that means weakened incentives to innovate. Startups and their founders and investors are driven, in part, by the prospect of being acquired, often by the platforms themselves. Making those acquisitions more difficult, or even impossible, means removing one of the key ways startup founders can exit their firms, and hence one of the key rewards and incentives for starting an innovative new business. 

For more, our “Joint Submission of Antitrust Economists, Legal Scholars, and Practitioners” set out why many of the House Democrats’ assumptions about the state of the economy and antitrust enforcement were mistaken. And my post, “Buck’s “Third Way”: A Different Road to the Same Destination”, argued that House Republicans like Ken Buck were misguided in believing they could support some of the proposals and avoid the massive regulatory oversight that they said they rejected.

Platform Anti-Monopoly Act 

The flagship bill, introduced by Antitrust Subcommittee Chairman David Cicilline (D-R.I.), establishes a definition of “covered platform” used by several of the other bills. The measures would apply to platforms with at least 500,000 U.S.-based users, a market capitalization of more than $600 billion, and that is deemed a “critical trading partner” with the ability to restrict or impede the access that a “dependent business” has to its users or customers.

Cicilline’s bill would bar these covered platforms from being able to promote their own products and services over the products and services of competitors who use the platform. It also defines a number of other practices that would be regarded as discriminatory, including: 

  • Restricting or impeding “dependent businesses” from being able to access the platform or its software on the same terms as the platform’s own lines of business;
  • Conditioning access or status on purchasing other products or services from the platform; 
  • Using user data to support the platform’s own products in ways not extended to competitors; 
  • Restricting the platform’s commercial users from using or accessing data generated on the platform from their own customers;
  • Restricting platform users from uninstalling software pre-installed on the platform;
  • Restricting platform users from providing links to facilitate business off of the platform;
  • Preferencing the platform’s own products or services in search results or rankings;
  • Interfering with how a dependent business prices its products; 
  • Impeding a dependent business’ users from connecting to services or products that compete with those offered by the platform; and
  • Retaliating against users who raise concerns with law enforcement about potential violations of the act.

On a basic level, these would prohibit lots of behavior that is benign and that can improve the quality of digital services for users. Apple pre-installing a Weather app on the iPhone would, for example, run afoul of these rules, and the rules as proposed could prohibit iPhones from coming with pre-installed apps at all. Instead, users would have to manually download each app themselves, if indeed Apple was allowed to include the App Store itself pre-installed on the iPhone, given that this competes with other would-be app stores.

Apart from the obvious reduction in the quality of services and convenience for users that this would involve, this kind of conduct (known as “self-preferencing”) is usually procompetitive. For example, self-preferencing allows platforms to compete with one another by using their strength in one market to enter a different one; Google’s Shopping results in the Search page increase the competition that Amazon faces, because it presents consumers with a convenient alternative when they’re shopping online for products. Similarly, Amazon’s purchase of the video-game streaming service Twitch, and the self-preferencing it does to encourage Amazon customers to use Twitch and support content creators on that platform, strengthens the competition that rivals like YouTube face. 

It also helps innovation, because it gives firms a reason to invest in services that would otherwise be unprofitable for them. Google invests in Android, and gives much of it away for free, because it can bundle Google Search into the OS, and make money from that. If Google could not self-preference Google Search on Android, the open source business model simply wouldn’t work—it wouldn’t be able to make money from Android, and would have to charge for it in other ways that may be less profitable and hence give it less reason to invest in the operating system. 

This behavior can also increase innovation by the competitors of these companies, both by prompting them to improve their products (as, for example, Google Android did with Microsoft’s mobile operating system offerings) and by growing the size of the customer base for products of this kind. For example, video games published by console manufacturers (like Nintendo’s Zelda and Mario games) are often blockbusters that grow the overall size of the user base for the consoles, increasing demand for third-party titles as well.

For more, check out “Against the Vertical Discrimination Presumption” by Geoffrey Manne and Dirk Auer’s piece “On the Origin of Platforms: An Evolutionary Perspective”.

Ending Platform Monopolies Act 

Sponsored by Rep. Pramila Jayapal (D-Wash.), this bill would make it illegal for covered platforms to control lines of business that pose “irreconcilable conflicts of interest,” enforced through civil litigation powers granted to the Federal Trade Commission (FTC) and the U.S. Justice Department (DOJ).

Specifically, the bill targets lines of business that create “a substantial incentive” for the platform to advantage its own products or services over those of competitors that use the platform, or to exclude or disadvantage competing businesses from using the platform. The FTC and DOJ could potentially order that platforms divest lines of business that violate the act.

This targets similar conduct as the previous bill, but involves the forced separation of different lines of business. It also appears to go even further, seemingly implying that companies like Google could not even develop services like Google Maps or Chrome because their existence would create such “substantial incentives” to self-preference them over the products of their competitors. 

Apart from the straightforward loss of innovation and product developments this would involve, requiring every tech company to be narrowly focused on a single line of business would substantially entrench Big Tech incumbents, because it would make it impossible for them to extend into adjacent markets to compete with one another. For example, Apple could not develop a search engine to compete with Google under these rules, and Amazon would be forced to sell its video-streaming services that compete with Netflix and Youtube.

For more, check out Geoffrey Manne’s written testimony to the House Antitrust Subcommittee and “Platform Self-Preferencing Can Be Good for Consumers and Even Competitors” by Geoffrey and me. 

Platform Competition and Opportunity Act

Introduced by Rep. Hakeem Jeffries (D-N.Y.), this bill would bar covered platforms from making essentially any acquisitions at all. To be excluded from the ban on acquisitions, the platform would have to present “clear and convincing evidence” that the acquired business does not compete with the platform for any product or service, does not pose a potential competitive threat to the platform, and would not in any way enhance or help maintain the acquiring platform’s market position. 

The two main ways that founders and investors can make a return on a successful startup are to float the company at IPO or to be acquired by another business. The latter of these, acquisitions, is extremely important. Between 2008 and 2019, 90 percent of U.S. start-up exits happened through acquisition. In a recent survey, half of current startup executives said they aimed to be acquired. One study found that countries that made it easier for firms to be taken over saw a 40-50 percent increase in VC activity, and that U.S. states that made acquisitions harder saw a 27 percent decrease in VC investment deals

So this proposal would probably reduce investment in U.S. startups, since it makes it more difficult for them to be acquired. It would therefore reduce innovation as a result. It would also reduce inter-platform competition by banning deals that allow firms to move into new markets, like the acquisition of Beats that helped Apple to build a Spotify competitor, or the deals that helped Google, Microsoft, and Amazon build cloud-computing services that all compete with each other. It could also reduce competition faced by old industries, by preventing tech companies from buying firms that enable it to move into new markets—like Amazon’s acquisitions of health-care companies that it has used to build a health-care offering. Even Walmart’s acquisition of Jet.com, which it has used to build an Amazon competitor, could have been banned under this law if Walmart had had a higher market cap at the time.

For more, check out Dirk Auer’s piece “Facebook and the Pros and Cons of Ex Post Merger Reviews” and my piece “Cracking down on mergers would leave us all worse off”. 

ACCESS Act

The Augmenting Compatibility and Competition by Enabling Service Switching (ACCESS) Act, sponsored by Rep. Mary Gay Scanlon (D-Pa.), would establish data portability and interoperability requirements for platforms. 

Under terms of the legislation, covered platforms would be required to allow third parties to transfer data to their users or, with the user’s consent, to a competing business. It also would require platforms to facilitate compatible and interoperable communications with competing businesses. The law directs the FTC to establish technical committees to promulgate the standards for portability and interoperability. 

Data portability and interoperability involve trade-offs in terms of security and usability, and overseeing them can be extremely costly and difficult. In security terms, interoperability requirements prevent companies from using closed systems to protect users from hostile third parties. Mandatory openness means increasing—sometimes, substantially so—the risk of data breaches and leaks. In practice, that could mean users’ private messages or photos being leaked more frequently, or activity on a social media page that a user considers to be “their” private data, but that “belongs” to another user under the terms of use, can be exported and publicized as such. 

It can also make digital services more buggy and unreliable, by requiring that they are built in a more “open” way that may be more prone to unanticipated software mismatches. A good example is that of Windows vs iOS; Windows is far more interoperable with third-party software than iOS is, but tends to be less stable as a result, and users often prefer the closed, stable system. 

Interoperability requirements also entail ongoing regulatory oversight, to make sure data is being provided to third parties reliably. It’s difficult to build an app around another company’s data without assurance that the data will be available when users want it. For a requirement as broad as this bill’s, that could mean setting up quite a large new de facto regulator. 

In the UK, Open Banking (an interoperability requirement imposed on British retail banks) has suffered from significant service outages, and targets a level of uptime that many developers complain is too low for them to build products around. Nor has Open Banking yet led to any obvious competition benefits.

For more, check out Gus Hurwitz’s piece “Portable Social Media Aren’t Like Portable Phone Numbers” and my piece “Why Data Interoperability Is Harder Than It Looks: The Open Banking Experience”.

Merger Filing Fee Modernization Act

A bill that mirrors language in the Endless Frontier Act recently passed by the U.S. Senate, would significantly raise filing fees for the largest mergers. Rather than the current cap of $280,000 for mergers valued at more than $500 million, the bill—sponsored by Rep. Joe Neguse (D-Colo.)–the new schedule would assess fees of $2.25 million for mergers valued at more than $5 billion; $800,000 for those valued at between $2 billion and $5 billion; and $400,000 for those between $1 billion and $2 billion.

Smaller mergers would actually see their filing fees cut: from $280,000 to $250,000 for those between $500 million and $1 billion; from $125,000 to $100,000 for those between $161.5 million and $500 million; and from $45,000 to $30,000 for those less than $161.5 million. 

In addition, the bill would appropriate $418 million to the FTC and $252 million to the DOJ’s Antitrust Division for Fiscal Year 2022. Most people in the antitrust world are generally supportive of more funding for the FTC and DOJ, although whether this is actually good or not depends both on how it’s spent at those places. 

It’s hard to object if it goes towards deepening the agencies’ capacities and knowledge, by hiring and retaining higher quality staff with salaries that are more competitive with those offered by the private sector, and on greater efforts to study the effects of the antitrust laws and past cases on the economy. If it goes toward broadening the activities of the agencies, by doing more and enabling them to pursue a more aggressive enforcement agenda, and supporting whatever of the above proposals make it into law, then it could be very harmful. 

For more, check out my post “Buck’s “Third Way”: A Different Road to the Same Destination” and Thom Lambert’s post “Bad Blood at the FTC”.

I recently published a piece in the Hill welcoming the Canadian Supreme Court’s decision in Google v. Equustek. In this post I expand (at length) upon my assessment of the case.

In its decision, the Court upheld injunctive relief against Google, directing the company to avoid indexing websites offering the infringing goods in question, regardless of the location of the sites (and even though Google itself was not a party in the case nor in any way held liable for the infringement). As a result, the Court’s ruling would affect Google’s conduct outside of Canada as well as within it.

The case raises some fascinating and thorny issues, but, in the end, the Court navigated them admirably.

Some others, however, were not so… welcoming of the decision (see, e.g., here and here).

The primary objection to the ruling seems to be, in essence, that it is the top of a slippery slope: “If Canada can do this, what’s to stop Iran or China from doing it? Free expression as we know it on the Internet will cease to exist.”

This is a valid concern, of course — in the abstract. But for reasons I explain below, we should see this case — and, more importantly, the approach adopted by the Canadian Supreme Court — as reassuring, not foreboding.

Some quick background on the exercise of extraterritorial jurisdiction in international law

The salient facts in, and the fundamental issue raised by, the case were neatly summarized by Hugh Stephens:

[The lower Court] issued an interim injunction requiring Google to de-index or delist (i.e. not return search results for) the website of a firm (Datalink Gateways) that was marketing goods online based on the theft of trade secrets from Equustek, a Vancouver, B.C., based hi-tech firm that makes sophisticated industrial equipment. Google wants to quash a decision by the lower courts on several grounds, primarily that the basis of the injunction is extra-territorial in nature and that if Google were to be subject to Canadian law in this case, this could open a Pandora’s box of rulings from other jurisdictions that would require global delisting of websites thus interfering with freedom of expression online, and in effect “break the Internet”.

The question of jurisdiction with regard to cross-border conduct is clearly complicated and evolving. But, in important ways, it isn’t anything new just because the Internet is involved. As Jack Goldsmith and Tim Wu (yes, Tim Wu) wrote (way back in 2006) in Who Controls the Internet?: Illusions of a Borderless World:

A government’s responsibility for redressing local harms caused by a foreign source does not change because the harms are caused by an Internet communication. Cross-border harms that occur via the Internet are not any different than those outside the Net. Both demand a response from governmental authorities charged with protecting public values.

As I have written elsewhere, “[g]lobal businesses have always had to comply with the rules of the territories in which they do business.”

Traditionally, courts have dealt with the extraterritoriality problem by applying a rule of comity. As my colleague, Geoffrey Manne (Founder and Executive Director of ICLE), reminds me, the principle of comity largely originated in the work of the 17th Century Dutch legal scholar, Ulrich Huber. Huber wrote that comitas gentium (“courtesy of nations”) required the application of foreign law in certain cases:

[Sovereigns will] so act by way of comity that rights acquired within the limits of a government retain their force everywhere so far as they do not cause prejudice to the powers or rights of such government or of their subjects.

And, notably, Huber wrote that:

Although the laws of one nation can have no force directly with another, yet nothing could be more inconvenient to commerce and to international usage than that transactions valid by the law of one place should be rendered of no effect elsewhere on account of a difference in the law.

The basic principle has been recognized and applied in international law for centuries. Of course, the flip side of the principle is that sovereign nations also get to decide for themselves whether to enforce foreign law within their jurisdictions. To summarize Huber (as well as Lord Mansfield, who brought the concept to England, and Justice Story, who brought it to the US):

All three jurists were concerned with deeply polarizing public issues — nationalism, religious factionalism, and slavery. For each, comity empowered courts to decide whether to defer to foreign law out of respect for a foreign sovereign or whether domestic public policy should triumph over mere courtesy. For each, the court was the agent of the sovereign’s own public law.

The Canadian Supreme Court’s well-reasoned and admirably restrained approach in Equustek

Reconciling the potential conflict between the laws of Canada and those of other jurisdictions was, of course, a central subject of consideration for the Canadian Court in Equustek. The Supreme Court, as described below, weighed a variety of factors in determining the appropriateness of the remedy. In analyzing the competing equities, the Supreme Court set out the following framework:

[I]s there a serious issue to be tried; would the person applying for the injunction suffer irreparable harm if the injunction were not granted; and is the balance of convenience in favour of granting the interlocutory injunction or denying it. The fundamental question is whether the granting of an injunction is just and equitable in all of the circumstances of the case. This will necessarily be context-specific. [Here, as throughout this post, bolded text represents my own, added emphasis.]

Applying that standard, the Court held that because ordering an interlocutory injunction against Google was the only practical way to prevent Datalink from flouting the court’s several orders, and because there were no sufficient, countervailing comity or freedom of expression concerns in this case that would counsel against such an order being granted, the interlocutory injunction was appropriate.

I draw particular attention to the following from the Court’s opinion:

Google’s argument that a global injunction violates international comity because it is possible that the order could not have been obtained in a foreign jurisdiction, or that to comply with it would result in Google violating the laws of that jurisdiction is, with respect, theoretical. As Fenlon J. noted, “Google acknowledges that most countries will likely recognize intellectual property rights and view the selling of pirated products as a legal wrong”.

And while it is always important to pay respectful attention to freedom of expression concerns, particularly when dealing with the core values of another country, I do not see freedom of expression issues being engaged in any way that tips the balance of convenience towards Google in this case. As Groberman J.A. concluded:

In the case before us, there is no realistic assertion that the judge’s order will offend the sensibilities of any other nation. It has not been suggested that the order prohibiting the defendants from advertising wares that violate the intellectual property rights of the plaintiffs offends the core values of any nation. The order made against Google is a very limited ancillary order designed to ensure that the plaintiffs’ core rights are respected.

In fact, as Andrew Keane Woods writes at Lawfare:

Under longstanding conflicts of laws principles, a court would need to weigh the conflicting and legitimate governments’ interests at stake. The Canadian court was eager to undertake that comity analysis, but it couldn’t do so because the necessary ingredient was missing: there was no conflict of laws.

In short, the Canadian Supreme Court, while acknowledging the importance of comity and appropriate restraint in matters with extraterritorial effect, carefully weighed the equities in this case and found that they favored the grant of extraterritorial injunctive relief. As the Court explained:

Datalink [the direct infringer] and its representatives have ignored all previous court orders made against them, have left British Columbia, and continue to operate their business from unknown locations outside Canada. Equustek has made efforts to locate Datalink with limited success. Datalink is only able to survive — at the expense of Equustek’s survival — on Google’s search engine which directs potential customers to Datalink’s websites. This makes Google the determinative player in allowing the harm to occur. On balance, since the world‑wide injunction is the only effective way to mitigate the harm to Equustek pending the trial, the only way, in fact, to preserve Equustek itself pending the resolution of the underlying litigation, and since any countervailing harm to Google is minimal to non‑existent, the interlocutory injunction should be upheld.

As I have stressed, key to the Court’s reasoning was its close consideration of possible countervailing concerns and its entirely fact-specific analysis. By the very terms of the decision, the Court made clear that its balancing would not necessarily lead to the same result where sensibilities or core values of other nations would be offended. In this particular case, they were not.

How critics of the decision (and there are many) completely miss the true import of the Court’s reasoning

In other words, the holding in this case was a function of how, given the facts of the case, the ruling would affect the particular core concerns at issue: protection and harmonization of global intellectual property rights on the one hand, and concern for the “sensibilities of other nations,” including their concern for free expression, on the other.

This should be deeply reassuring to those now criticizing the decision. And yet… it’s not.

Whether because they haven’t actually read or properly understood the decision, or because they are merely grandstanding, some commenters are proclaiming that the decision marks the End Of The Internet As We Know It — you know, it’s going to break the Internet. Or something.

Human Rights Watch, an organization I generally admire, issued a statement including the following:

The court presumed no one could object to delisting someone it considered an intellectual property violator. But other countries may soon follow this example, in ways that more obviously force Google to become the world’s censor. If every country tries to enforce its own idea of what is proper to put on the Internet globally, we will soon have a race to the bottom where human rights will be the loser.

The British Columbia Civil Liberties Association added:

Here it was technical details of a product, but you could easily imagine future cases where we might be talking about copyright infringement, or other things where people in private lawsuits are wanting things to be taken down off  the internet that are more closely connected to freedom of expression.

From the other side of the traditional (if insufficiently nuanced) “political spectrum,” AEI’s Ariel Rabkin asserted that

[O]nce we concede that Canadian courts can regulate search engine results in Turkey, it is hard to explain why a Turkish court shouldn’t have the reciprocal right. And this is no hypothetical — a Turkish court has indeed ordered Twitter to remove a user (AEI scholar Michael Rubin) within the United States for his criticism of Erdogan. Once the jurisdictional question is decided, it is no use raising free speech as an issue. Other countries do not have our free speech norms, nor Canada’s. Once Canada concedes that foreign courts have the right to regulate Canadian search results, they are on the internet censorship train, and there is no egress before the end of the line.

In this instance, in particular, it is worth noting not only the complete lack of acknowledgment of the Court’s articulated constraints on taking action with extraterritorial effect, but also the fact that Turkey (among others) has hardly been waiting for approval from Canada before taking action.   

And then there’s EFF (of course). EFF, fairly predictably, suggests first — with unrestrained hyperbole — that the Supreme Court held that:

A country has the right to prevent the world’s Internet users from accessing information.

Dramatic hyperbole aside, that’s also a stilted way to characterize the content at issue in the case. But it is important to EFF’s misleading narrative to begin with the assertion that offering infringing products for sale is “information” to which access by the public is crucial. But, of course, the distribution of infringing products is hardly “expression,” as most of us would understand that term. To claim otherwise is to denigrate the truly important forms of expression that EFF claims to want to protect.

And, it must be noted, even if there were expressive elements at issue, infringing “expression” is always subject to restriction under the copyright laws of virtually every country in the world (and free speech laws, where they exist).

Nevertheless, EFF writes that the decision:

[W]ould cut off access to information for U.S. users would set a dangerous precedent for online speech. In essence, it would expand the power of any court in the world to edit the entire Internet, whether or not the targeted material or site is lawful in another country. That, we warned, is likely to result in a race to the bottom, as well-resourced individuals engage in international forum-shopping to impose the one country’s restrictive laws regarding free expression on the rest of the world.

Beyond the flaws of the ruling itself, the court’s decision will likely embolden other countries to try to enforce their own speech-restricting laws on the Internet, to the detriment of all users. As others have pointed out, it’s not difficult to see repressive regimes such as China or Iran use the ruling to order Google to de-index sites they object to, creating a worldwide heckler’s veto.

As always with EFF missives, caveat lector applies: None of this is fair or accurate. EFF (like the other critics quoted above) is looking only at the result — the specific contours of the global order related to the Internet — and not to the reasoning of the decision itself.

Quite tellingly, EFF urges its readers to ignore the case in front of them in favor of a theoretical one. That is unfortunate. Were EFF, et al. to pay closer attention, they would be celebrating this decision as a thoughtful, restrained, respectful, and useful standard to be employed as a foundational decision in the development of global Internet governance.

The Canadian decision is (as I have noted, but perhaps still not with enough repetition…) predicated on achieving equity upon close examination of the facts, and giving due deference to the sensibilities and core values of other nations in making decisions with extraterritorial effect.

Properly understood, the ruling is a shield against intrusions that undermine freedom of expression, and not an attack on expression.

EFF subverts the reasoning of the decision and thus camouflages its true import, all for the sake of furthering its apparently limitless crusade against all forms of intellectual property. The ruling can be read as an attack on expression only if one ascribes to the distribution of infringing products the status of protected expression — so that’s what EFF does. But distribution of infringing products is not protected expression.

Extraterritoriality on the Internet is complicated — but that undermines, rather than justifies, critics’ opposition to the Court’s analysis

There will undoubtedly be other cases that present more difficult challenges than this one in defining the jurisdictional boundaries of courts’ abilities to address Internet-based conduct with multi-territorial effects. But the guideposts employed by the Supreme Court of Canada will be useful in informing such decisions.

Of course, some states don’t (or won’t, when it suits them), adhere to principles of comity. But that was true long before the Equustek decision. And, frankly, the notion that this decision gives nations like China or Iran political cover for global censorship is ridiculous. Nations that wish to censor the Internet will do so regardless. If anything, reference to this decision (which, let me spell it out again, highlights the importance of avoiding relief that would interfere with core values or sensibilities of other nations) would undermine their efforts.

Rather, the decision will be far more helpful in combating censorship and advancing global freedom of expression. Indeed, as noted by Hugh Stephens in a recent blog post:

While the EFF, echoed by its Canadian proxy OpenMedia, went into hyperventilation mode with the headline, “Top Canadian Court permits Worldwide Internet Censorship”, respected organizations like the Canadian Civil Liberties Association (CCLA) welcomed the decision as having achieved the dual objectives of recognizing the importance of freedom of expression and limiting any order that might violate that fundamental right. As the CCLA put it,

While today’s decision upholds the worldwide order against Google, it nevertheless reflects many of the freedom of expression concerns CCLA had voiced in our interventions in this case.

As I noted in my piece in the Hill, this decision doesn’t answer all of the difficult questions related to identifying proper jurisdiction and remedies with respect to conduct that has global reach; indeed, that process will surely be perpetually unfolding. But, as reflected in the comments of the Canadian Civil Liberties Association, it is a deliberate and well-considered step toward a fair and balanced way of addressing Internet harms.

With apologies for quoting myself, I noted the following in an earlier piece:

I’m not unsympathetic to Google’s concerns. As a player with a global footprint, Google is legitimately concerned that it could be forced to comply with the sometimes-oppressive and often contradictory laws of countries around the world. But that doesn’t make it — or any other Internet company — unique. Global businesses have always had to comply with the rules of the territories in which they do business… There will be (and have been) cases in which taking action to comply with the laws of one country would place a company in violation of the laws of another. But principles of comity exist to address the problem of competing demands from sovereign governments.

And as Andrew Keane Woods noted:

Global takedown orders with no limiting principle are indeed scary. But Canada’s order has a limiting principle. As long as there is room for Google to say to Canada (or France), “Your order will put us in direct and significant violation of U.S. law,” the order is not a limitless assertion of extraterritorial jurisdiction. In the instance that a service provider identifies a conflict of laws, the state should listen.

That is precisely what the Canadian Supreme Court’s decision contemplates.

No one wants an Internet based on the lowest common denominator of acceptable speech. Yet some appear to want an Internet based on the lowest common denominator for the protection of original expression. These advocates thus endorse theories of jurisdiction that would deny societies the ability to enforce their own laws, just because sometimes those laws protect intellectual property.

And yet that reflects little more than an arbitrary prioritization of those critics’ personal preferences. In the real world (including the real online world), protection of property is an important value, deserving reciprocity and courtesy (comity) as much as does speech. Indeed, the G20 Digital Economy Ministerial Declaration adopted in April of this year recognizes the importance to the digital economy of promoting security and trust, including through the provision of adequate and effective intellectual property protection. Thus the Declaration expresses the recognition of the G20 that:

[A]pplicable frameworks for privacy and personal data protection, as well as intellectual property rights, have to be respected as they are essential to strengthening confidence and trust in the digital economy.

Moving forward in an interconnected digital universe will require societies to make a series of difficult choices balancing both competing values and competing claims from different jurisdictions. Just as it does in the offline world, navigating this path will require flexibility and skepticism (if not rejection) of absolutism — including with respect to the application of fundamental values. Even things like freedom of expression, which naturally require a balancing of competing interests, will need to be reexamined. We should endeavor to find that fine line between allowing individual countries to enforce their own national judgments and a tolerance for those countries that have made different choices. This will not be easy, as well manifested in something that Alice Marwick wrote earlier this year:

But a commitment to freedom of speech above all else presumes an idealistic version of the internet that no longer exists. And as long as we consider any content moderation to be censorship, minority voices will continue to be drowned out by their aggressive majority counterparts.

* * *

We need to move beyond this simplistic binary of free speech/censorship online. That is just as true for libertarian-leaning technologists as it is neo-Nazi provocateurs…. Aggressive online speech, whether practiced in the profanity and pornography-laced environment of 4Chan or the loftier venues of newspaper comments sections, positions sexism, racism, and anti-Semitism (and so forth) as issues of freedom of expression rather than structural oppression.

Perhaps we might want to look at countries like Canada and the United Kingdom, which take a different approach to free speech than does the United States. These countries recognize that unlimited free speech can lead to aggression and other tactics which end up silencing the speech of minorities — in other words, the tyranny of the majority. Creating online communities where all groups can speak may mean scaling back on some of the idealism of the early internet in favor of pragmatism. But recognizing this complexity is an absolutely necessary first step.

While I (and the Canadian Supreme Court, for that matter) share EFF’s unease over the scope of extraterritorial judgments, I fundamentally disagree with EFF that the Equustek decision “largely sidesteps the question of whether such a global order would violate foreign law or intrude on Internet users’ free speech rights.”

In fact, it is EFF’s position that comes much closer to a position indifferent to the laws and values of other countries; in essence, EFF’s position would essentially always prioritize the particular speech values adopted in the US, regardless of whether they had been adopted by the countries affected in a dispute. It is therefore inconsistent with the true nature of comity.

Absolutism and exceptionalism will not be a sound foundation for achieving global consensus and the effective operation of law. As stated by the Canadian Supreme Court in Equustek, courts should enforce the law — whatever the law is — to the extent that such enforcement does not substantially undermine the core sensitivities or values of nations where the order will have effect.

EFF ignores the process in which the Court engaged precisely because EFF — not another country, but EFF — doesn’t find the enforcement of intellectual property rights to be compelling. But that unprincipled approach would naturally lead in a different direction where the court sought to protect a value that EFF does care about. Such a position arbitrarily elevates EFF’s idiosyncratic preferences. That is simply not a viable basis for constructing good global Internet governance.

If the Internet is both everywhere and nowhere, our responses must reflect that reality, and be based on the technology-neutral application of laws, not the abdication of responsibility premised upon an outdated theory of tech exceptionalism under which cyberspace is free from the application of the laws of sovereign nations. That is not the path to either freedom or prosperity.

To realize the economic and social potential of the Internet, we must be guided by both a determination to meaningfully address harms, and a sober reservation about interfering in the affairs of other states. The Supreme Court of Canada’s decision in Google v. Equustek has planted a flag in this space. It serves no one to pretend that the Court decided that a country has the unfettered right to censor the Internet. That’s not what it held — and we should be grateful for that. To suggest otherwise may indeed be self-fulfilling.

It appears that White House’s zeal for progressive-era legal theory has … progressed (or regressed?) further. Late last week President Obama signed an Executive Order that nominally claims to direct executive agencies (and “strongly encourages” independent agencies) to adopt “pro-competitive” policies. It’s called Steps to Increase Competition and Better Inform Consumers and Workers to Support Continued Growth of the American Economy, and was produced alongside an issue brief from the Council of Economic Advisors titled Benefits of Competition and Indicators of Market Power.

TL;DR version: the Order and its brief do not appear so much aimed at protecting consumers or competition, as they are at providing justification for favored regulatory adventures.

In truth, it’s not exactly clear what problem the President is trying to solve. And there is language in both the Order and the brief that could be interpreted in a positive light, and, likewise, language that could be more of a shot across the bow of “unruly” corporate citizens who have not gotten in line with the President’s agenda. Most of the Order and the corresponding CEA brief read as a rote recital of basic antitrust principles: price fixing bad, collusion bad, competition good. That said, there were two items in the Order that particularly stood out.

The (Maybe) Good

Section 2 of the Order states that

Executive departments … with authorities that could be used to enhance competition (agencies) shall … use those authorities to promote competition, arm consumers and workers with the information they need to make informed choices, and eliminate regulations that restrict competition without corresponding benefits to the American public. (emphasis added)

Obviously this is music to the ears of anyone who has thought that agencies should be required to do a basic economic analysis before undertaking brave voyages of regulatory adventure. And this is what the Supreme Court was getting at in Michigan v. EPA when it examined the meaning of the phrase “appropriate” in connection with environmental regulations:

One would not say that it is even rational, never mind “appropriate,” to impose billions of dollars in economic costs in return for a few dollars in health or environmental benefits.

Thus, if this Order follows the direction of Michigan v. EPA, and it becomes the standard for agencies to conduct cost-benefit analyses before issuing regulation (and to review old regulations through such an analysis), then wonderful! Moreover, this mandate to agencies to reduce regulations that restrict competition could lead to an unexpected reformation of a variety of regulations – even outside of the agencies themselves. For instance, the FTC is laudable in its ongoing efforts both to correct anticompetitive state licensing laws as well as to resist state-protected incumbents, such as taxi-cab companies.

Still, I have trouble believing that the President — and this goes for any president, really, regardless of party — would truly intend for agencies under his control to actually cede regulatory ground when a little thing like economic reality points in a different direction than official policy. After all, there was ample information available that the Title II requirements on broadband providers would be both costly and result in reduced capital expenditures, and the White House nonetheless encouraged the FCC to go ahead with reclassification.

And this isn’t the first time that the President has directed agencies to perform retrospective review of regulation (see the Identifying and Reducing Regulatory Burdens Order of 2012). To date, however, there appears to be little evidence that the burdens of the regulatory state have lessened. Last year set a record for the page count of the Federal Register (80k+ pages), and the data suggest that the cost of the regulatory state is only increasing. Thus, despite the pleasant noises the Order makes with regard to imposing economic discipline on agencies – and despite the good example Canada has set for us in this regard – I am not optimistic of the actual result.

And the (maybe) good builds an important bridge to the (probably) bad of the Order. It is well and good to direct agencies to engage in economic calculation when they write and administer regulations, but such calculation must be in earnest, and must be directed by the learning that was hard earned over the course of the development of antitrust jurisprudence in the US. As Geoffrey Manne and Josh Wright have noted:

Without a serious methodological commitment to economic science, the incorporation of economics into antitrust is merely a façade, allowing regulators and judges to select whichever economic model fits their earlier beliefs or policy preferences rather than the model that best fits the real‐world data. Still, economic theory remains essential to antitrust law. Economic analysis constrains and harnesses antitrust law so that it protects consumers rather than competitors.

Unfortunately, the brief does not indicate that it is interested in more than a façade of economic rigor. For instance, it relies on the outmoded 50 firm revenue concentration numbers gathered by the Census Bureau to support the proposition that the industries themselves are highly concentrated and, therefore, are anticompetitive. But, it’s been fairly well understood since the 1970s that concentration says nothing directly about monopoly power and its exercise. In fact, concentration can often be seen as an indicator of superior efficiency that results in better outcomes for consumers (depending on the industry).

The (Probably) Bad

Apart from general concerns (such as having a host of federal agencies with no antitrust expertise now engaging in competition turf wars) there is one specific area that could have a dramatically bad result for long term policy, and that moreover reflects either ignorance or willful blindness of antitrust jurisprudence. Specifically, the Order directs agencies to

identify specific actions that they can take in their areas of responsibility to build upon efforts to detect abuses such as price fixing, anticompetitive behavior in labor and other input markets, exclusionary conduct, and blocking access to critical resources that are needed for competitive entry. (emphasis added).

It then goes on to say that

agencies shall submit … an initial list of … any specific practices, such as blocking access to critical resources, that potentially restrict meaningful consumer or worker choice or unduly stifle new market entrants (emphasis added)

The generally uncontroversial language regarding price fixing and exclusionary conduct are bromides – after all, as the Order notes, we already have the FTC and DOJ very actively policing this sort of conduct. What’s novel here, however, is that the highlighted language above seems to amount to a mandate to executive agencies (and a strong suggestion to independent agencies) that they begin to seek out “essential facilities” within their regulated industries.

But “critical resources … needed for competitive entry” could mean nearly anything, depending on how you define competition and relevant markets. And asking non-antitrust agencies to integrate one of the more esoteric (and controversial) parts of antitrust law into their mission is going to be a recipe for disaster.

In fact, this may be one of the reasons why the Supreme Court declined to recognize the essential facilities doctrine as a distinct rule in Trinko, where it instead characterized the exclusionary conduct in Aspen Skiing as ‘at or near the outer boundary’ of Sherman Act § 2 liability.

In short, the essential facilities doctrine is widely criticized, by pretty much everyone. In their respected treatise, Antitrust Law, Herbert Hovenkamp and Philip Areeda have said that “the essential facility doctrine is both harmful and unnecessary and should be abandoned”; Michael Boudin has noted that the doctrine is full of “embarrassing weaknesses”; and Gregory Werden has opined that “Courts should reject the doctrine.” One important reason for the broad criticism is because

At bottom, a plaintiff … is saying that the defendant has a valuable facility that it would be difficult to reproduce … But … the fact that the defendant has a highly valued facility is a reason to reject sharing, not to require it, since forced sharing “may lessen the incentive for the monopolist, the rival, or both to invest in those economically beneficial facilities.” (quoting Trinko)

Further, it’s really hard to say when one business is so critical to a particular market that its own internal functions need to be exposed for competitors’ advantage. For instance, is Big Data – which the CEA brief specifically notes as a potential “critical resource” — an essential facility when one company serves so many consumers that it has effectively developed an entire market that it dominates? ( In case you are wondering, it’s actually not). When exactly does a firm so outcompete its rivals that access to its business infrastructure can be seen by regulators as “essential” to competition? And is this just a set-up for punishing success — which hardly promotes competition, innovation or consumer welfare?

And, let’s be honest here, when the CEA is considering Big Data as an essential facility they are at least partially focused on Google and its various search properties. Google is frequently the target for “essentialist” critics who argue, among other things, that Google’s prioritization of its own properties in its own search results violates antitrust rules. The story goes that Google search is so valuable that when Google publishes its own shopping results ahead of its various competitors, it is engaging in anticompetitive conduct. But this is a terribly myopic view of what the choices are for search services because, as Geoffrey Manne has so ably noted before, “competitors denied access to the top few search results at Google’s site are still able to advertise their existence and attract users through a wide range of other advertising outlets[.]”

Moreover, as more and more users migrate to specialized apps on their mobile devices for a variety of content, Google’s desktop search becomes just one choice among many for finding information. All of this leaves to one side, of course, the fact that for some categories, Google has incredibly stiff competition.

Thus it is that

to the extent that inclusion in Google search results is about “Stiglerian” search-cost reduction for websites (and it can hardly be anything else), the range of alternate facilities for this function is nearly limitless.

The troubling thing here is that, given the breezy analysis of the Order and the CEA brief, I don’t think the White House is really considering the long-term legal and economic implications of its command; the Order appears to be much more about political support for favored agency actions already under way.

Indeed, despite the length of the CEA brief and the variety of antitrust principles recited in the Order itself, an accompanying release points to what is really going on (at least in part). The White House, along with the FCC, seems to think that the embedded streams in a cable or satellite broadcast should be considered a form of essential facility that is an indispensable component of video consumers’ choice (which is laughable given the magnitude of choice in video consumption options that consumers enjoy today).

And, to the extent that courts might apply the (controversial) essential facilities doctrine, an “indispensable requirement … is the unavailability of access to the ‘essential facilities’[.]” This is clearly not the case with much of what the CEA brief points to as examples of ostensibly laudable pro-competitive regulation.

The doctrine wouldn’t apply, for instance, to the FCC’s Open Internet Order since edge providers have access to customers over networks, even where network providers want to zero-rate, employ usage-based billing or otherwise negotiate connection fees and prioritization. And it also doesn’t apply to the set-top box kerfuffle; while third-parties aren’t able to access the video streams that make-up a cable broadcast, the market for consuming those streams is a single part of the entire video ecosystem. What really matters there is access to viewers, and the ability to provide services to consumers and compete for their business.

Yet, according to the White House, “the set-top box is the mascot” for the administration’s competition Order, because, apparently, cable boxes represent “what happens when you don’t have the choice to go elsewhere.” ( “Elsewhere” to the White House, I assume, cannot include Roku, Apple TV, Hulu, Netflix, and a myriad of other video options  that consumers can currently choose among.)

The set-top box is, according to the White House, a prime example of the problem that

[a]cross our economy, too many consumers are dealing with inferior or overpriced products, too many workers aren’t getting the wage increases they deserve, too many entrepreneurs and small businesses are getting squeezed out unfairly by their bigger competitors, and overall we are not seeing the level of innovative growth we would like to see.

This is, of course, nonsense. Consumers enjoy an incredible amount of low-cost, high quality goods (including video options) – far more than at any point in history.  After all:

From cable to Netflix to Roku boxes to Apple TV to Amazon FireStick, we have more ways to find and watch TV than ever — and we can do so in our living rooms, on our phones and tablets, and on seat-back screens at 30,000 feet. Oddly enough, FCC Chairman Tom Wheeler … agrees: “American consumers enjoy unprecedented choice in how they view entertainment, news and sports programming. You can pretty much watch what you want, where you want, when you want.”

Thus, I suspect that the White House has its eye on a broader regulatory agenda.

For instance, the Department of Labor recently announced that it would be extending its reach in the financial services industry by changing the standard for when financial advice might give rise to a fiduciary relationship under ERISA. It seems obvious that the SEC or FINRA could have taken up the slack for any financial services regulatory issues – it’s certainly within their respective wheelhouses. But that’s not the direction the administration took, possibly because SEC and FINRA are independent agencies. Thus, the DOL – an agency with substantially less financial and consumer protection experience than either the SEC or FINRA — has expansive new authority.

And that’s where more of the language in the Order comes into focus. It directs agencies to “ensur[e] that consumers and workers have access to the information needed to make informed choices[.]” The text of the DOL rule develops for itself a basis in competition law as well:

The current proposal’s defined boundaries between fiduciary advice, education, and sales activity directed at large plans, may bring greater clarity to the IRA and plan services markets. Innovation in new advice business models, including technology-driven models, may be accelerated, and nudged away from conflicts and toward transparency, thereby promoting healthy competition in the fiduciary advice market.

Thus, it’s hard to see what the White House is doing in the Order, other than laying the groundwork for expansive authority of non-independent executive agencies under the thin guise of promoting competition. Perhaps the President believes that couching this expansion in free market terms ( i.e. that its “pro-competition”) will somehow help the initiatives go through with minimal friction. But there is nothing in the Order or the CEA brief to provide any confidence that competition will, in fact, be promoted. And in the end I have trouble seeing how this sort of regulatory adventurism does not run afoul of separation of powers issues, as well as assorted other legal challenges.

Finally, conjuring up a regulatory version of the essential facilities doctrine as a support for this expansion is simply a terrible idea — one that smacks much more of industrial policy than of sound regulatory reform or consumer protection.