Archives For Antonin Scalia

Amazingly enough, at a time when legislative proposals for new antitrust restrictions are rapidly multiplying—see the Competition and Antitrust Law Enforcement Reform Act (CALERA), for example—Congress simultaneously is seriously considering granting antitrust immunity to a price-fixing cartel among members of the newsmedia. This would thereby authorize what the late Justice Antonin Scalia termed “the supreme evil of antitrust: collusion.” What accounts for this bizarre development?

Discussion

The antitrust exemption in question, embodied in the Journalism Competition and Preservation Act of 2021, was introduced March 10 simultaneously in the U.S. House and Senate. The press release announcing the bill’s introduction portrayed it as a “good government” effort to help struggling newspapers in their negotiations with large digital platforms, and thereby strengthen American democracy:

We must enable news organizations to negotiate on a level playing field with the big tech companies if we want to preserve a strong and independent press[.] …

A strong, diverse, free press is critical for any successful democracy. …

Nearly 90 percent of Americans now get news while on a smartphone, computer, or tablet, according to a Pew Research Center survey conducted last year, dwarfing the number of Americans who get news via television, radio, or print media. Facebook and Google now account for the vast majority of online referrals to news sources, with the two companies also enjoying control of a majority of the online advertising market. This digital ad duopoly has directly contributed to layoffs and consolidation in the news industry, particularly for local news.

This legislation would address this imbalance by providing a safe harbor from antitrust laws so publishers can band together to negotiate with large platforms. It provides a 48-month window for companies to negotiate fair terms that would flow subscription and advertising dollars back to publishers, while protecting and preserving Americans’ right to access quality news. These negotiations would strictly benefit Americans and news publishers at-large; not just one or a few publishers.

The Journalism Competition and Preservation Act only allows coordination by news publishers if it (1) directly relates to the quality, accuracy, attribution or branding, and interoperability of news; (2) benefits the entire industry, rather than just a few publishers, and are non-discriminatory to other news publishers; and (3) is directly related to and reasonably necessary for these negotiations.

Lurking behind this public-spirited rhetoric, however, is the specter of special interest rent seeking by powerful media groups, as discussed in an insightful article by Thom Lambert. The newspaper industry is indeed struggling, but that is true overseas as well as in the United States. Competition from internet websites has greatly reduced revenues from classified and non-classified advertising. As Lambert notes, in “light of the challenges the internet has created for their advertising-focused funding model, newspapers have sought to employ the government’s coercive power to increase their revenues.”

In particular, media groups have successfully lobbied various foreign governments to impose rules requiring that Google and Facebook pay newspapers licensing fees to display content. The Australian government went even further by mandating that digital platforms share their advertising revenue with news publishers and give the publishers advance notice of any algorithm changes that could affect page rankings and displays. Media rent-seeking efforts took a different form in the United States, as Lambert explains (citations omitted):

In the United States, news publishers have sought to extract rents from digital platforms by lobbying for an exemption from the antitrust laws. Their efforts culminated in the introduction of the Journalism Competition and Preservation Act of 2018. According to a press release announcing the bill, it would allow “small publishers to band together to negotiate with dominant online platforms to improve the access to and the quality of news online.” In reality, the bill would create a four-year safe harbor for “any print or digital news organization” to jointly negotiate terms of trade with Google and Facebook. It would not apply merely to “small publishers” but would instead immunize collusive conduct by such major conglomerates as Murdoch’s News Corporation, the Walt Disney Corporation, the New York Times, Gannet Company, Bloomberg, Viacom, AT&T, and the Fox Corporation. The bill would permit news organizations to fix prices charged to digital platforms as long as negotiations with the platforms were not limited to price, were not discriminatory toward similarly situated news organizations, and somehow related to “the quality, accuracy, attribution or branding, and interoperability of news.” Given the ease of meeting that test—since news organizations could always claim that higher payments were necessary to ensure journalistic quality—the bill would enable news publishers in the United States to extract rents via collusion rather than via direct government coercion, as in Australia.

The 2021 version of the JCPA is nearly identical to the 2018 version discussed by Thom. The only substantive change is that the 2021 version strengthens the pro-cartel coalition by adding broadcasters (it applies to “any print, broadcast, or news organization”). While the JCPA plainly targets Facebook and Google (“online content distributors” with “not fewer than 1,000,000,000 monthly active users, in the aggregate, on its website”), Microsoft President Brad Smith noted in a March 12 House Antitrust Subcommittee Hearing on the bill that his company would also come under its collective-bargaining terms. Other online distributors could eventually become subject to the proposed law as well.

Purported justifications for the proposal were skillfully skewered by John Yun in a 2019 article on the substantively identical 2018 JCPA. Yun makes several salient points. First, the bill clearly shields price fixing. Second, the claim that all news organizations (in particular, small newspapers) would receive the same benefit from the bill rings hollow. The bill’s requirement that negotiations be “nondiscriminatory as to similarly situated news content creators” (emphasis added) would allow the cartel to negotiate different terms of trade for different “tiers” of organizations. Thus The New York Times and The Washington Post, say, might be part of a top tier getting the most favorable terms of trade. Third, the evidence does not support the assertion that Facebook and Google are monopolistic gateways for news outlets.

Yun concludes by summarizing the case against this legislation (citations omitted):

Put simply, the impact of the bill is to legalize a media cartel. The bill expressly allows the cartel to fix the price and set the terms of trade for all market participants. The clear goal is to transfer surplus from online platforms to news organizations, which will likely result in higher content costs for these platforms, as well as provisions that will stifle the ability to innovate. In turn, this could negatively impact quality for the users of these platforms.

Furthermore, a stated goal of the bill is to promote “quality” news and to “highlight trusted brands.” These are usually antitrust code words for favoring one group, e.g., those that are part of the News Media Alliance, while foreclosing others who are not “similarly situated.” What about the non-discrimination clause? Will it protect non-members from foreclosure? Again, a careful reading of the bill raises serious questions as to whether it will actually offer protection. The bill only ensures that the terms of the negotiations are available to all “similarly situated” news organizations. It is very easy to carve out provisions that would favor top tier members of the media cartel.

Additionally, an unintended consequence of antitrust exemptions can be that it makes the beneficiaries lax by insulating them from market competition and, ultimately, can harm the industry by delaying inevitable and difficult, but necessary, choices. There is evidence that this is what occurred with the Newspaper Preservation Act of 1970, which provided antitrust exemption to geographically proximate newspapers for joint operations.

There are very good reasons why antitrust jurisprudence reserves per se condemnation to the most egregious anticompetitive acts including the formation of cartels. Legislative attempts to circumvent the federal antitrust laws should be reserved solely for the most compelling justifications. There is little evidence that this level of justification has been met in this present circumstance.

Conclusion

Statutory exemptions to the antitrust laws have long been disfavored, and with good reason. As I explained in my 2005 testimony before the Antitrust Modernization Commission, such exemptions tend to foster welfare-reducing output restrictions. Also, empirical research suggests that industries sheltered from competition perform less well than those subject to competitive forces. In short, both economic theory and real-world data support a standard that requires proponents of an exemption to bear the burden of demonstrating that the exemption will benefit consumers.

This conclusion applies most strongly when an exemption would specifically authorize hard-core price fixing, as in the case with the JCPA. What’s more, the bill’s proponents have not borne the burden of justifying their pro-cartel proposal in economic welfare terms—quite the opposite. Lambert’s analysis exposes this legislation as the product of special interest rent seeking that has nothing to do with consumer welfare. And Yun’s evaluation of the bill clarifies that, not only would the JCPA foster harmful collusive pricing, but it would also harm its beneficiaries by allowing them to avoid taking steps to modernize and render themselves more efficient competitors.

In sum, though the JCPA claims to fly a “public interest” flag, it is just another private interest bill promoted by well-organized rent seekers would harm consumer welfare and undermine innovation.

I am sharing the press release below:

George Mason University receives $30 million in gifts, renames School of Law after Justice Antonin Scalia

Largest combined gift in university’s history will support new scholarship programs

Arlington, VA— George Mason University today announces pledges totaling $30 million to the George Mason University Foundation to support the School of Law.  The gifts, combined, are the largest in university history. The gifts will help establish three new scholarship programs that will potentially benefit hundreds of students seeking to study law at Mason.

In recognition of this historic gift, the Board of Visitors has approved the renaming of the school to The Antonin Scalia School of Law at George Mason University.

“This is a milestone moment for the university,” said George Mason University President Ángel Cabrera. “These gifts will create opportunities to attract and retain the best and brightest students, deliver on our mission of inclusive excellence, and continue our goal to make Mason one of the preeminent law schools in the country.”

Mason has grown rapidly over the last four decades to become the largest public research university in Virginia. The School of Law was established in 1979 and has been continually ranked among the top 50 law programs in the nation by U.S. News and World Report.

Justice Scalia, who served 30 years on the U.S. Supreme Court, spoke at the dedication of the law school building in 1999 and was a guest lecturer at the university.  He was a resident of nearby McLean, Virginia.

Justice Ruth Bader Ginsburg, his esteemed colleague on the Supreme Court for more than two decades, said Scalia’s opinions challenged her thinking and that naming the law school after him was a fine tribute.

“Justice Scalia was a law teacher, public servant, legal commentator, and jurist nonpareil. As a colleague who held him in highest esteem and great affection, I miss his bright company and the stimulus he provided, his opinions ever challenging me to meet his best efforts with my own. It is a tribute altogether fitting that George Mason University’s law school will bear his name. May the funds for scholarships, faculty growth, and curricular development aid the Antonin Scalia School of Law to achieve the excellence characteristic of Justice Scalia, grand master in life and law,” added Ginsburg.

“Justice Scalia’s name evokes the very strengths of our school: civil liberties, law and economics, and constitutional law,” said Law School Dean Henry N. Butler. “His career embodies our law school’s motto of learn, challenge, lead. As a professor and jurist, he challenged those around him to be rigorous, intellectually honest, and consistent in their arguments.”

The combined gift will allow the university to establish three new scholarship programs to be awarded exclusively and independently by the university:

Antonin Scalia Scholarship Awarded to students with excellent academic credentials.

A. Linwood Holton, Jr. Leadership Scholarship – Named in honor of the former governor of the Commonwealth of Virginia, this scholarship will be awarded to students who have overcome barriers to academic success, demonstrated outstanding leadership qualities, or have helped others overcome discrimination in any facet of life.

F.A. Hayek Law, Legislation, and Liberty Scholarship – Named in honor of the 1974 Nobel Prize winner in economics, this scholarship will be awarded to students who have a demonstrated interest in studying the application of economic principles to the law.

“The growth of George Mason University’s law school, both in size and influence, is a tribute to the hard work of its leaders and faculty members,” said Governor Terry McAuliffe. “I am particularly pleased that new scholarship awards for students who face steep barriers in their academic pursuits will be named in honor of former Virginia Governor Linwood Holton, an enduring and appropriate legacy for a man who championed access to education for all Virginians.”

The scholarships will help Mason continue to be one of the most diverse universities in America.

“When we speak about diversity, that includes diversity of thought and exposing ourselves to a range of ideas and points of view,” said Cabrera. “Justice Scalia was an advocate of vigorous debate and enjoyed thoughtful conversations with those he disagreed with, as shown by his longtime friendship with Justice Ginsburg. That ability to listen and engage with others, despite having contrasting opinions or perspectives, is what higher education is all about.”

The gift includes $20 million that came to George Mason through a donor who approached Leonard A. Leo of the Federalist Society, a personal friend of the late Justice Scalia and his family.  The anonymous donor asked that the university name the law school in honor of the Justice. “The Scalia family is pleased to see George Mason name its law school after the Justice, helping to memorialize his commitment to a legal education that is grounded in academic freedom and a recognition of the practice of law as an honorable and intellectually rigorous craft,” said Leo. 

The gift also includes a $10 million grant from the Charles Koch Foundation, which supports hundreds of colleges and universities across the country that pursue scholarship related to societal well-being and free societies.

“We’re excited to support President Cabrera and Dean Butler’s vision for the Law School as they welcome new students and continue to distinguish Mason as a world-class research university,” said Charles Koch Foundation President Brian Hooks.

The name change is pending approval from the State Council of Higher Education for Virginia.

A formal dedication ceremony will occur in the fall.

About George Mason

George Mason University is Virginia’s largest public research university. Located near Washington, D.C., Mason enrolls more than 33,000 students from 130 countries and all 50 states. Mason has grown rapidly over the past half-century and is recognized for its innovation and entrepreneurship, remarkable diversity, and commitment to accessibility.

About the Mason School of Law

The George Mason University School of Law is defined by three words: Learn. Challenge. Lead. The goal is to have students who will receive an outstanding legal education (Learn), be taught to critically evaluate prevailing orthodoxy and pursue new ideas (Challenge), and, ultimately, be well prepared to distinguish themselves in their chosen fields (Lead).

About Faster Farther—The Campaign for George Mason University

Faster Farther is about securing Mason’s place as the intellectual cornerstone of our region and a global leader in higher education. We have a goal to raise $500 million through 2018.