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We’re delighted to welcome Eric Fruits as our newest blogger at Truth on the Market.
Eric Fruits, Ph.D. is the Oregon Association of Realtors Faculty Fellow at Portland State University and the recently minted Chief Economist at the International Center for Law & Economics.
Among other things, Dr. Fruits is an antitrust expert, with particular expertise in price fixing and cartels (see, e.g., his article, Market Power and Cartel Formation: Theory and an Empirical Test, in the Journal of Law and Economics). He has assisted in the review of several mergers including Sysco-US Foods, Exxon-Mobil, BP-Arco, and Nestle-Ralston. He has worked on numerous antitrust lawsuits, including Weyerhaeuser v. Ross-Simmons, a predatory bidding case that was ultimately decided by the US Supreme Court (and discussed at some length by Thom here on TOTM: See here and here).
As an expert in statistics, he has provided expert opinions and testimony regarding market manipulation, real estate transactions, profit projections, agricultural commodities, and war crimes allegations. His expert testimony has been submitted to state courts, federal courts, and an international court.
Eric has also written peer-reviewed articles on insider trading, initial public offerings (IPOs), and the municipal bond market, among many other topics. His economic analysis has been widely cited and has been published in The Economist and the Wall Street Journal. His testimony regarding the economics of public employee pension reforms was heard by a special session of the Oregon Supreme Court.
You can also find him on Twitter at @ericfruits
Nicolas has also recently been named a (non-resident) Senior Scholar at ICLE (joining Joshua Wright, Joanna Shepherd, and Julian Morris).
Nicolas is also (as of March 2017) a Research Professor at the University of South Australia, co-director of the Liege Competition & Innovation Institute and director of the LL.M. program in EU Competition and Intellectual Property Law. He is also a part-time advisor to the Belgian competition authority.
Nicolas is a prolific scholar specializing in competition policy, IP law, and technology regulation. Nicolas Petit is the co-author (with Damien Geradin and Anne Layne-Farrar) of EU Competition Law and Economics (Oxford University Press, 2012) and the author of Droit européen de la concurrence (Domat Montchrestien, 2013), a monograph that was awarded the prize for the best law book of the year at the Constitutional Court in France.
One of his most recent papers, Significant Impediment to Industry Innovation: A Novel Theory of Harm in EU Merger Control?, was recently published as an ICLE Competition Research Program White Paper. His scholarship is available on SSRN and he tweets at @CompetitionProf.
Truth on the Market is delighted to welcome our newest blogger, Neil Turkewitz. Neil is the newly minted Senior Policy Counsel at the International Center for Law & Economics (so we welcome him to ICLE, as well!).
Prior to joining ICLE, Neil spent 30 years at the Recording Industry Association of America (RIAA), most recently as Executive Vice President, International.
Neil has spent most of his career working to expand economic opportunities for the music industry through modernization of copyright legislation and effective enforcement in global markets. He has worked closely with creative communities around the globe, with the US and foreign governments, and with international organizations (including WIPO and the WTO), to promote legal and enforcement reforms to respond to evolving technology, and to promote a balanced approach to digital trade and Internet governance premised upon the importance of regulatory coherence, elimination of inefficient barriers to global communications, and respect for Internet freedom and the rule of law.
Among other things, Neil was instrumental in the negotiation of the WTO TRIPS Agreement, worked closely with the US and foreign governments in the negotiation of free trade agreements, helped to develop the OECD’s Communique on Principles for Internet Policy Making, coordinated a global effort culminating in the production of the WIPO Internet Treaties, served as a formal advisor to the Secretary of Commerce and the USTR as Vice-Chairman of the Industry Trade Advisory Committee on Intellectual Property Rights, and served as a member of the Board of the Chamber of Commerce’s Global Intellectual Property Center.
In our previous amicus brief before the panel that initially reviewed the OIO, we argued, among other things, that
In order to justify its Order, the Commission makes questionable use of important facts. For instance, the Order’s ban on paid prioritization ignores and mischaracterizes relevant record evidence and relies on irrelevant evidence. The Order also omits any substantial consideration of costs. The apparent necessity of the Commission’s aggressive treatment of the Order’s factual basis demonstrates the lengths to which the Commission must go in its attempt to fit the Order within its statutory authority.
Our brief supporting en banc review builds on these points to argue that
By reflexively affording substantial deference to the FCC in affirming the Open Internet Order (“OIO”), the panel majority’s opinion is in tension with recent Supreme Court precedent….
The panel majority need not have, and arguably should not have, afforded the FCC the level of deference that it did. The Supreme Court’s decisions in State Farm, Fox, and Encino all require a more thorough vetting of the reasons underlying an agency change in policy than is otherwise required under the familiar Chevron framework. Similarly, Brown and Williamson, Utility Air Regulatory Group, and King all indicate circumstances in which an agency construction of an otherwise ambiguous statute is not due deference, including when the agency interpretation is a departure from longstanding agency understandings of a statute or when the agency is not acting in an expert capacity (e.g., its decision is based on changing policy preferences, not changing factual or technical considerations).
In effect, the panel majority based its decision whether to afford the FCC deference upon deference to the agency’s poorly supported assertions that it was due deference. We argue that this is wholly inappropriate in light of recent Supreme Court cases.
The panel majority failed to appreciate the importance of granting Chevron deference to the FCC. That importance is most clearly seen at an aggregate level. In a large-scale study of every Court of Appeals decision between 2003 and 2013, Professors Kent Barnett and Christopher Walker found that a court’s decision to defer to agency action is uniquely determinative in cases where, as here, an agency is changing established policy.
As that study demonstrates,
agency decisions to change established policy tend to present serious, systematic defects — and [thus that] it is incumbent upon this court to review the panel majority’s decision to reflexively grant Chevron deference. Further, the data underscore the importance of the Supreme Court’s command in Fox and Encino that agencies show good reason for a change in policy; its recognition in Brown & Williamson and UARG that departures from existing policy may fall outside of the Chevron regime; and its command in King that policies not made by agencies acting in their capacity as technical experts may fall outside of the Chevron regime. In such cases, the Court essentially holds that reflexive application of Chevron deference may not be appropriate because these circumstances may tend toward agency action that is arbitrary, capricious, in excess of statutory authority, or otherwise not in accordance with law.
As we conclude:
The present case is a clear example where greater scrutiny of an agency’s decision-making process is both warranted and necessary. The panel majority all too readily afforded the FCC great deference, despite the clear and unaddressed evidence of serious flaws in the agency’s decision-making process. As we argued in our brief before the panel, and as Judge Williams recognized in his partial dissent, the OIO was based on factually inaccurate, contradicted, and irrelevant record evidence.
Read our full — and very short — amicus brief here.
Yesterday, the International Center for Law & Economics, together with Professor Gus Hurwitz, Nebraska College of Law, and nine other scholars of law and economics, filed an amicus brief in the DC Circuit explaining why the court should vacate the FCC’s 2015 Open Internet Order.
A few key points from ICLE’s brief follow, but you can read a longer summary of the brief here.
If the 2010 Order was a limited incursion into neighboring territory, the 2015 Order represents the outright colonization of a foreign land, extending FCC control over the Internet far beyond what the Telecommunications Act authorizes.
The Commission asserts vast powers — powers that Congress never gave it — not just over broadband but also over the very ‘edge’ providers it claims to be protecting. The court should be very skeptical of the FCC’s claims to pervasive powers over the Internet.
In the 2015 Order, the FCC Invoked Title II, admitted that it was unworkable for the Internet, and then tried to ‘tailor’ the statute to avoid its worst excesses.
That the FCC felt the need for such sweeping forbearance should have indicated to it that it had ‘taken an interpretive wrong turn’ in understanding the statute Congress gave it. Last year, the Supreme Court blocked a similar attempt by the EPA to ‘modernize’ old legislation in a way that gave it expansive new powers. In its landmark UARG decision, the Court made clear that it won’t allow regulatory agencies to rewrite legislation in an effort to retrofit their statutes to their preferred regulatory regimes.
Internet regulation is a question of ‘vast economic and political significance,’ yet the FCC didn’t even bother to weigh the costs and benefits of its rule.
FCC Chairman Tom Wheeler never misses an opportunity to talk about the the Internet as ‘the most important network known to Man.’ So why did he and the previous FCC Chairman ignore requests from other commissioners for serious, independent economic analysis of the supposed problem and the best way to address it? Why did the FCC rush to adopt a plan that had the effect of blocking the Federal Trade Commission from applying its consumer protection laws to the Internet? For all the FCC’s talk about protecting consumers, it appears that its real agenda may be simply expanding its own power.
Joining ICLE on the brief are:
- Richard Epstein (NYU Law)
- James Huffman (Lewis & Clark Law)
- Gus Hurwitz (Nebraska Law)
- Thom Lambert (Missouri Law)
- Daniel Lyons (Boston College Law)
- Geoffrey Manne (ICLE)
- Randy May (Free State Foundation)
- Jeremy Rabkin (GMU Law)
- Ronald Rotunda (Chapman Law)
- Ilya Somin (GMU Law)
Read more of ICLE’s work on net neutrality and Title II, including:
- Highlights from policy and legal comments filed by ICLE and TechFreedom on net neutrality
- “Regulating the Most Powerful Network Ever,” a scholarly essay by Gus Hurwitz for the Free State Foundation
- “How to Break the Internet,” an essay by Geoffrey Manne and Ben Sperry, in Reason Magazine
- “The FCC’s Net Neutrality Victory is Anything But,” an op-ed by Geoffrey Manne, in Wired
- “The Feds Lost on Net Neutrality, But Won Control of the Internet,” an op-ed by Geoffrey Manne and Berin Szoka in Wired
- “Net Neutrality’s Hollow Promise to Startups,” an op-ed by Geoffrey Manne and Berin Szoka in Computerworld
- Letter signed by 32 scholars urging the FTC to caution the FCC against adopting per se net neutrality rules by reclassifying ISPs under Title II
- The FCC’s Open Internet Roundtables, Policy Approaches, Panel 3, Enhancing Transparency, with Geoffrey Manne
Earlier this week the International Center for Law & Economics, along with a group of prominent professors and scholars of law and economics, filed an amicus brief with the Ninth Circuit seeking rehearing en banc of the court’s FTC, et al. v. St Luke’s case.
ICLE, joined by the Medicaid Defense Fund, also filed an amicus brief with the Ninth Circuit panel that originally heard the case.
The case involves the purchase by St. Luke’s Hospital of the Saltzer Medical Group, a multi-specialty physician group in Nampa, Idaho. The FTC and the State of Idaho sought to permanently enjoin the transaction under the Clayton Act, arguing that
[T]he combination of St. Luke’s and Saltzer would give it the market power to demand higher rates for health care services provided by primary care physicians (PCPs) in Nampa, Idaho and surrounding areas, ultimately leading to higher costs for health care consumers.
Unfortunately, in affirming the district court’s decision, the Ninth Circuit made several errors in its treatment of the efficiencies offered by St. Luke’s in defense of the merger. Most importantly:
- The court refused to recognize St. Luke’s proffered quality efficiencies, stating that “[i]t is not enough to show that the merger would allow St. Luke’s to better serve patients.”
- The panel also applied the “less restrictive alternative” analysis in such a way that any theoretically possible alternative to a merger would discount those claimed efficiencies.
- Finally, the Ninth Circuit panel imposed a much higher burden of proof for St. Luke’s to prove efficiencies than it did for the FTC to make out its prima facie case.
As we note in our brief:
If permitted to stand, the Panel’s decision will signal to market participants that the efficiencies defense is essentially unavailable in the Ninth Circuit, especially if those efficiencies go towards improving quality. Companies contemplating a merger designed to make each party more efficient will be unable to rely on an efficiencies defense and will therefore abandon transactions that promote consumer welfare lest they fall victim to the sort of reasoning employed by the panel in this case.
The following excerpts from the brief elaborate on the errors committed by the court and highlight their significance, particularly in the health care context:
The Panel implied that only price effects can be cognizable efficiencies, noting that the District Court “did not find that the merger would increase competition or decrease prices.” But price divorced from product characteristics is an irrelevant concept. The relevant concept is quality-adjusted price, and a showing that a merger would result in higher product quality at the same price would certainly establish cognizable efficiencies.
* * *
By placing the ultimate burden of proving efficiencies on the defendants and by applying a narrow, impractical view of merger specificity, the Panel has wrongfully denied application of known procompetitive efficiencies. In fact, under the Panel’s ruling, it will be nearly impossible for merging parties to disprove all alternatives when the burden is on the merging party to address any and every untested, theoretical less-restrictive structural alternative.
* * *
Significantly, the Panel failed to consider the proffered significant advantages that health care acquisitions may have over contractual alternatives or how these advantages impact the feasibility of contracting as a less restrictive alternative. In a complex integration of assets, “the costs of contracting will generally increase more than the costs of vertical integration.” (Benjamin Klein, Robert G. Crawford, and Armen A. Alchian, Vertical Integration, Appropriable Rents, and the Competitive Contracting Process, 21 J. L. & ECON. 297, 298 (1978)). In health care in particular, complexity is a given. Health care is characterized by dramatically imperfect information, and myriad specialized and differentiated products whose attributes are often difficult to measure. Realigning incentives through contract is imperfect and often unsuccessful. Moreover, the health care market is one of the most fickle, plagued by constantly changing market conditions arising from technological evolution, ever-changing regulations, and heterogeneous (and shifting) consumer demand. Such uncertainty frequently creates too many contingencies for parties to address in either writing or enforcing contracts, making acquisition a more appropriate substitute.
* * *
Sound antitrust policy and law do not permit the theoretical to triumph over the practical. One can always envision ways that firms could function to achieve potential efficiencies…. But this approach would harm consumers and fail to further the aims of the antitrust laws.
* * *
The Panel’s approach to efficiencies in this case demonstrates a problematic asymmetry in merger analysis. As FTC Commissioner Wright has cautioned:
Merger analysis is by its nature a predictive enterprise. Thinking rigorously about probabilistic assessment of competitive harms is an appropriate approach from an economic perspective. However, there is some reason for concern that the approach applied to efficiencies is deterministic in practice. In other words, there is a potentially dangerous asymmetry from a consumer welfare perspective of an approach that embraces probabilistic prediction, estimation, presumption, and simulation of anticompetitive effects on the one hand but requires efficiencies to be proven on the other. (Dissenting Statement of Commissioner Joshua D. Wright at 5, In the Matter of Ardagh Group S.A., and Saint-Gobain Containers, Inc., and Compagnie de Saint-Gobain)
* * *
In this case, the Panel effectively presumed competitive harm and then imposed unduly high evidentiary burdens on the merging parties to demonstrate actual procompetitive effects. The differential treatment and evidentiary burdens placed on St. Luke’s to prove competitive benefits is “unjustified and counterproductive.” (Daniel A. Crane, Rethinking Merger Efficiencies, 110 MICH. L. REV. 347, 390 (2011)). Such asymmetry between the government’s and St. Luke’s burdens is “inconsistent with a merger policy designed to promote consumer welfare.” (Dissenting Statement of Commissioner Joshua D. Wright at 7, In the Matter of Ardagh Group S.A., and Saint-Gobain Containers, Inc., and Compagnie de Saint-Gobain).
* * *
In reaching its decision, the Panel dismissed these very sorts of procompetitive and quality-enhancing efficiencies associated with the merger that were recognized by the district court. Instead, the Panel simply decided that it would not consider the “laudable goal” of improving health care as a procompetitive efficiency in the St. Luke’s case – or in any other health care provider merger moving forward. The Panel stated that “[i]t is not enough to show that the merger would allow St. Luke’s to better serve patients.” Such a broad, blanket conclusion can serve only to harm consumers.
* * *
By creating a barrier to considering quality-enhancing efficiencies associated with better care, the approach taken by the Panel will deter future provider realignment and create a “chilling” effect on vital provider integration and collaboration. If the Panel’s decision is upheld, providers will be considerably less likely to engage in realignment aimed at improving care and lowering long-term costs. As a result, both patients and payors will suffer in the form of higher costs and lower quality of care. This can’t be – and isn’t – the outcome to which appropriate antitrust law and policy aspires.
The scholars joining ICLE on the brief are:
- George Bittlingmayer, Wagnon Distinguished Professor of Finance and Otto Distinguished Professor of Austrian Economics, University of Kansas
- Henry Butler, George Mason University Foundation Professor of Law and Executive Director of the Law & Economics Center, George Mason University
- Daniel A. Crane, Associate Dean for Faculty and Research and Professor of Law, University of Michigan
- Harold Demsetz, UCLA Emeritus Chair Professor of Business Economics, University of California, Los Angeles
- Bernard Ganglmair, Assistant Professor, University of Texas at Dallas
- Gus Hurwitz, Assistant Professor of Law, University of Nebraska-Lincoln
- Keith Hylton, William Fairfield Warren Distinguished Professor of Law, Boston University
- Thom Lambert, Wall Chair in Corporate Law and Governance, University of Missouri
- John Lopatka, A. Robert Noll Distinguished Professor of Law, Pennsylvania State University
- Geoffrey Manne, Founder and Executive Director of the International Center for Law and Economics and Senior Fellow at TechFreedom
- Stephen Margolis, Alumni Distinguished Undergraduate Professor, North Carolina State University
- Fred McChesney, de la Cruz-Mentschikoff Endowed Chair in Law and Economics, University of Miami
- Tom Morgan, Oppenheim Professor Emeritus of Antitrust and Trade Regulation Law, George Washington University
- David Olson, Associate Professor of Law, Boston College
- Paul H. Rubin, Samuel Candler Dobbs Professor of Economics, Emory University
- D. Daniel Sokol, Professor of Law, University of Florida
- Mike Sykuta, Associate Professor and Director of the Contracting and Organizations Research Institute, University of Missouri
The amicus brief is available here.
The Federal Trade Commission’s recent enforcement actions against Amazon and Apple raise important questions about the FTC’s consumer protection practices, especially its use of economics. How does the Commission weigh the costs and benefits of its enforcement decisions? How does the agency employ economic analysis in digital consumer protection cases generally?
Join the International Center for Law and Economics and TechFreedom on Thursday, July 31 at the Woolly Mammoth Theatre Company for a lunch and panel discussion on these important issues, featuring FTC Commissioner Joshua Wright, Director of the FTC’s Bureau of Economics Martin Gaynor, and several former FTC officials. RSVP here.
Commissioner Wright will present a keynote address discussing his dissent in Apple and his approach to applying economics in consumer protection cases generally.
Geoffrey Manne, Executive Director of ICLE, will briefly discuss his recent paper on the role of economics in the FTC’s consumer protection enforcement. Berin Szoka, TechFreedom President, will moderate a panel discussion featuring:
- Martin Gaynor, Director, FTC Bureau of Economics
- David Balto, Fmr. Deputy Assistant Director for Policy & Coordination, FTC Bureau of Competition
- Howard Beales, Fmr. Director, FTC Bureau of Consumer Protection
- James Cooper, Fmr. Acting Director & Fmr. Deputy Director, FTC Office of Policy Planning
- Pauline Ippolito, Fmr. Acting Director & Fmr. Deputy Director, FTC Bureau of Economics
The FTC recently issued a complaint and consent order against Apple, alleging its in-app purchasing design doesn’t meet the Commission’s standards of fairness. The action and resulting settlement drew a forceful dissent from Commissioner Wright, and sparked a discussion among the Commissioners about balancing economic harms and benefits in Section 5 unfairness jurisprudence. More recently, the FTC brought a similar action against Amazon, which is now pending in federal district court because Amazon refused to settle.
The “FTC: Technology and Reform” project brings together a unique collection of experts on the law, economics, and technology of competition and consumer protection to consider challenges facing the FTC in general, and especially regarding its regulation of technology. The Project’s initial report, released in December 2013, identified critical questions facing the agency, Congress, and the courts about the FTC’s future, and proposed a framework for addressing them.
Thursday, July 31
11:45 am – 12:15 pm — Lunch and registration
12:15 pm – 2:00 pm — Keynote address, paper presentation & panel discussion
See ICLE’s and TechFreedom’s other work on FTC reform, including:
- Geoffrey Manne’s Congressional testimony on the the FTC@100
- Op-ed by Berin Szoka and Geoffrey Manne, “The Second Century of the Federal Trade Commission”
- Two posts by Geoffrey Manne on the FTC’s Amazon Complaint, here and here.
About The International Center for Law and Economics:
The International Center for Law and Economics is a non-profit, non-partisan research center aimed at fostering rigorous policy analysis and evidence-based regulation.
TechFreedom is a non-profit, non-partisan technology policy think tank. We work to chart a path forward for policymakers towards a bright future where technology enhances freedom, and freedom enhances technology.
UPDATE: Trying to find the right hash tag for the event, I’ve changed the title of this post and we’ll follow the convention for our live blogging today–posts from the Workshop will all have “#agworkshop” in the title.
Later this week Mike Sykuta and I will be winging our way to Iowa on behalf of the ICLE to attend the first of the year-long series of DOJ/USDA Workshops on Agriculture and Antitrust Enforcement Issues. You can find the agenda for the first workshop, to be held Friday, March 12 in Ankeny, Iowa, here. Intrepid reporters, we, our plan is to “live blog” the event for those of you unable to attend. This first workshop, in addition to introducing the series, will focus on farming, which means seeds, which means the dispute between DuPont and Monsanto over licensing terms and everyone’s perennial favorite: industry concentration.
The agenda clearly reflects the highly-politicized nature of the issues under discussion, and, for example, a few news reports have suggested that the agenda has changed in response to pressure from Iowa Senator Tom Harkin. Regardless, we expect a lively and interesting discussion.
For ease of reference all of our blogs from the workshop will be categorized under “ag/antitrust workshop,” and each post will have “DOJ/USDA Workshop” in the title.
TOTM is no stranger to the issues, and Mike and I have blogged a few times about the antitrust/licensing issues involved. See:
Together with Scott Kieff and Joshua Wright, we also submitted a comment to the DOJ on the topic, “Comment on Intellectual Property, Concentration and the Limits of Antitrust in the Biotech Seed Industry,” available here (SSRN) or here (if you prefer to get it directly from the DOJ website).
The news has also been covering the seed industry antitrust issues, the DOJ/USDA workshops and agricultural antitrust issues more generally, and you can find a host of relevant news articles here.
We’re looking forward to the workshops and to your comments on the day’s events.
Over at the International Center for Law and Economics website we’ve posted a link to a pdf e-book version of the collected content (including both posts and comments) from our recent “Interchange Fees and the Law and Economics of Credit Cards” symposium. Head on over and download a copy if you’re interested in a dead tree version of the symposium.