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The Forgotten Strand of the Anti-Monopoly Tradition in Anglo-American Law

Ben Sperry —  13 January 2021

Admirers of the late Supreme Court Justice Louis Brandeis and other antitrust populists often trace the history of American anti-monopoly sentiments from the Founding Era through the Progressive Era’s passage of laws to fight the scourge of 19th century monopolists. For example, Matt Stoller of the American Economic Liberties Project, both in his book Goliath and in other writings, frames the story of America essentially as a battle between monopolists and anti-monopolists.

According to this reading, it was in the late 20th century that powerful corporations and monied interests ultimately succeeded in winning the battle in favor of monopoly power against antitrust authorities, aided by the scholarship of the “ideological” Chicago school of economics and more moderate law & economics scholars like Herbert Hovenkamp of the University of Pennsylvania Law School.

It is a framing that leaves little room for disagreements about economic theory or evidence. One is either anti-monopoly or pro-monopoly, anti-corporate power or pro-corporate power.

What this story muddles is that the dominant anti-monopoly strain from English common law, which continued well into the late 19th century, was opposed specifically to government-granted monopoly. In contrast, today’s “anti-monopolists” focus myopically on alleged monopolies that often benefit consumers, while largely ignoring monopoly power granted by government. The real monopoly problem antitrust law fails to solve is its immunization of anticompetitive government policies. Recovering the older anti-monopoly tradition would better focus activists today.

Common Law Anti-Monopoly Tradition

Scholars like Timothy Sandefur of the Goldwater Institute have written about the right to earn a living that arose out of English common law and was inherited by the United States. This anti-monopoly stance was aimed at government-granted privileges, not at successful business ventures that gained significant size or scale.

For instance, 1602’s Darcy v. Allein, better known as the “Case of Monopolies,” dealt with a “patent” originally granted by Queen Elizabeth I in 1576 to Ralph Bowes, and later bought by Edward Darcy, to make and sell playing cards. Darcy did not innovate playing cards; he merely had permission to be the sole purveyor. Thomas Allein, who attempted to sell playing cards he created, was sued for violating Darcy’s exclusive rights. Darcy’s monopoly ultimately was held to be invalid by the court, which refused to convict Allein.

Edward Coke, who actually argued on behalf of the patent in Darcy v. Allen, wrote that the case stood for the proposition that:

All trades, as well mechanical as others, which prevent idleness (the bane of the commonwealth) and exercise men and youth in labour, for the maintenance of themselves and their families, and for the increase of their substance, to serve the Queen when occasion shall require, are profitable for the commonwealth, and therefore the grant to the plaintiff to have the sole making of them is against the common law, and the benefit and liberty of the subject. (emphasis added)

In essence, Coke’s argument was more closely linked to a “right to work” than to market structures, business efficiency, or firm conduct.

The courts largely resisted royal monopolies in 17th century England, finding such grants to violate the common law. For instance, in The Case of the Tailors of Ipswich, the court cited Darcy and found:

…at the common law, no man could be prohibited from working in any lawful trade, for the law abhors idleness, the mother of all evil… especially in young men, who ought in their youth, (which is their seed time) to learn lawful sciences and trades, which are profitable to the commonwealth, and whereof they might reap the fruit in their old age, for idle in youth, poor in age; and therefore the common law abhors all monopolies, which prohibit any from working in any lawful trade. (emphasis added)

The principles enunciated in these cases were eventually codified in the Statute of Monopolies, which prohibited the crown from granting monopolies in most circumstances. This was especially the case when the monopoly prevented the right to otherwise lawful work.

This common-law tradition also had disdain for private contracts that created monopoly by restraining the right to work. For instance, the famous Dyer’s case of 1414 held that a contract in which John Dyer promised not to practice his trade in the same town as the plaintiff was void for being an unreasonable restraint on trade.The judge is supposed to have said in response to the plaintiff’s complaint that he would have imprisoned anyone who had claimed such a monopoly on his own authority.

Over time, the common law developed analysis that looked at the reasonableness of restraints on trade, such as the extent to which they were limited in geographic reach and duration, as well as the consideration given in return. This part of the anti-monopoly tradition would later constitute the thread pulled on by the populists and progressives who created the earliest American antitrust laws.

Early American Anti-Monopoly Tradition

American law largely inherited the English common law system. It also inherited the anti-monopoly tradition the common law embodied. The founding generation of American lawyers were trained on Edward Coke’s commentary in “The Institutes of the Laws of England,” wherein he strongly opposed government-granted monopolies.

This sentiment can be found in the 1641 Massachusetts Body of Liberties, which stated: “No monopolies shall be granted or allowed amongst us, but of such new Inventions that are profitable to the Countrie, and that for a short time.” In fact, the Boston Tea Party itself was in part a protest of the monopoly granted to the East India Company, which included a special refund from duties by Parliament that no other tea importers enjoyed.

This anti-monopoly tradition also can be seen in the debates at the Constitutional Convention. A proposal to give the federal government power to grant “charters of incorporation” was voted down on fears it could lead to monopolies. Thomas Jefferson, George Mason, and several Antifederalists expressed concerns about the new national government’s ability to grant monopolies, arguing that an anti-monopoly clause should be added to the Constitution. Six states wanted to include provisions that would ban monopolies and the granting of special privileges in the Constitution.

The American anti-monopoly tradition remained largely an anti-government tradition throughout much of the 19th century, rearing its head in debates about the Bank of the United States, publicly-funded internal improvements, and government-granted monopolies over bridges and seas. Pamphleteer Lysander Spooner even tried to start a rival to the Post Office by appealing to the strong American impulse against monopoly.

Coinciding with the Industrial Revolution, liberalization of corporate law made it easier for private persons to organize firms that were not simply grants of exclusive monopoly. But discontent with industrialization and other social changes contributed to the birth of a populist movement, and later to progressives like Brandeis, who focused on private combinations and corporate power rather than government-granted privileges. This is the strand of anti-monopoly sentiment that continues to dominate the rhetoric today.

What This Means for Today

Modern anti-monopoly advocates have largely forgotten the lessons of the long Anglo-American tradition that found government is often the source of monopoly power. Indeed, American law privileges government’s ability to grant favors to businesses through licensing, the tax code, subsidies, and even regulation. The state action doctrine from Parker v. Brown exempts state and municipal authorities from antitrust lawsuits even where their policies have anticompetitive effects. And the Noerr-Pennington doctrine protects the rights of industry groups to lobby the government to pass anticompetitive laws.

As a result, government is often used to harm competition, with no remedy outside of the political process that created the monopoly. Antitrust law is used instead to target businesses built by serving consumers well in the marketplace.

Recovering this older anti-monopoly tradition would help focus the anti-monopoly movement on a serious problem modern antitrust misses. While the consumer-welfare standard that modern antitrust advocates often decry has helped to focus the law on actual harms to consumers, antitrust more broadly continues to encourage rent-seeking by immunizing state action and lobbying behavior.

In Amazon, Antitrust & Competition, Constitutional Law, Corporate & Securities Law, Economic Theory, Google, Intellectual Property, Law & Economics, Monopolization, Patent, Platforms, Truth on the Market , , , , , , , , , , , ,
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Economics is Dead. Long Live Economics! A Review of The Economists’ Hour

Ben Sperry —  13 November 2019

The Economists' Hour

John Maynard Keynes wrote in his famous General Theory that “[t]he ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.” 

This is true even of those who wish to criticize the effect of economic thinking on society. In his new book, The Economists’ Hour: False Prophets, Free Markets, and the Fracture of Society,  New York Times economics reporter Binyamin Appelbaum aims to show that economists have had a detrimental effect on public policy. But the central irony of the Economists’ Hour is that in criticizing the influence of economists over policy, Appelbaum engages in a great deal of economic speculation himself. Appelbaum would discard the opinions of economists in favor of “the lessons of history,” but all he is left with is unsupported economic reasoning. 

Much of The Economists’ Hour is about the history of ideas. To his credit, Appelbaum does a fair job describing Anglo-American economic thought post-New Deal until the start of the 21st century. Part I mainly focuses on macroeconomics, detailing the demise of the Keynesian consensus and the rise of the monetarists and supply-siders. If the author were not so cynical about the influence of economists, he might have represented these changes in dominant economic paradigms as an example of how science progresses over time.  

Interestingly, Appelbaum often makes the case that the insights of economists have been incredibly beneficial. For instance, in the opening chapter, he describes how Milton Friedman (one of the main protagonists/antagonists of the book, depending on your point of view) and a band of economists (including Martin Anderson and Walter Oi) fought the military establishment and ended the draft. For that, I’m sure most of us born in the past fifty years would be thankful. One suspects that group includes Appelbaum, though he tries to find objections, claiming for example that “by making war more efficient and more remote from the lives of most Americans, the end of the draft may also have made war more likely.” 

Appelbaum also notes positively that economists, most prominently Alfred Kahn in the United States, led the charge in a largely beneficial deregulation of the airline and trucking industries in the late 1970s and early 1980s. 

Yet, overall, it is clear that Appelbaum believes the “outsized” influence of economists over policymaking itself fails the cost-benefit analysis. Appelbaum focuses on the costs of listening too much to economists on antitrust law, trade and development, interest rates and currency, the use of cost-benefit analysis in regulation, and the deregulation of the financial services industry. He sees the deregulation of airlines and trucking as the height of the economists’ hour, and its close with the financial crisis of the late-2000s. His thesis is that (his interpretation of) economists’ notions of efficiency, their (alleged) lack of concern about distributional effects, and their (alleged) myopia has harmed society as their influence over policy has grown.

In his chapter on antitrust, for instance, Appelbaum admits that even though “[w]e live in a new era of giant corporations… there is little evidence consumers are suffering.” Appelbaum argues instead that lax antitrust enforcement has resulted in market concentration harmful to workers, democracy, and innovation. In order to make those arguments, he uncritically cites the work of economists and non-economist legal scholars that make economic claims. A closer inspection of each of these (economic) arguments suggests there is more to the story.

First, recent research questions the narrative that increasing market concentration has resulted in harm to consumers, workers, or society. In their recent paper, “The Industrial Revolution in Services,” Chang-Tai Hsieh of the University of Chicago and Esteban Rossi-Hansberg of Princeton University argue that increasing concentration is primarily due to technological innovation in services, retail, and wholesale sectors. While there has been greater concentration at the national level, this has been accompanied by increased competition locally as national chains expanded to more local markets. Of note, employment has increased in the sectors where national concentration is rising.

The rise in national industry concentration in the US between 1977 and 2013 is driven by a new industrial revolution in three broad non-traded sectors: services, retail, and wholesale. Sectors where national concentration is rising have increased their share of employment, and the expansion is entirely driven by the number of local markets served by firms. Firm employment per market has either increased slightly at the MSA level, or decreased substantially at the county or establishment levels. In industries with increasing concentration, the expansion into more markets is more pronounced for the top 10% firms, but is present for the bottom 90% as well. These trends have not been accompanied by economy-wide concentration. Top U.S. firms are increasingly specialized in sectors with rising industry concentration, but their aggregate employment share has remained roughly stable. We argue that these facts are consistent with the availability of a new set of fixed-cost technologies that enable adopters to produce at lower marginal costs in all markets. We present a simple model of firm size and market entry to describe the menu of new technologies and trace its implications.

In other words, any increase in concentration has been sector-specific and primarily due to more efficient national firms expanding into local markets. This has been associated with lower prices for consumers and more employment opportunities for workers in those sectors.

Appelbaum also looks to Lina Khan’s law journal article, which attacks Amazon for allegedly engaging in predatory pricing, as an example of a new group of young scholars coming to the conclusion that there is a need for more antitrust scrutiny. But, as ICLE scholars Alec Stapp and Kristian Stout have pointed out, there is very little evidence Amazon is actually engaging in predatory pricing. Khan’s article is a challenge to the consensus on how to think about predatory pricing and consumer welfare, but her underlying economic theory is premised on Amazon having such a long time horizon that they can lose money on retail for decades (even though it has been profitable for some time), on the theory that someday down the line they can raise prices after they have run all retail competition out.

Second, Appelbaum argues that mergers and acquisitions in the technology sector, especially acquisitions by Google and Facebook of potential rivals, has decreased innovation. Appelbaum’s belief is that innovation is spurred when government forces dominant players “to make room” for future competition. Here he draws in part on claims by some economists that dominant firms sometimes engage in “killer acquisitions” — acquiring nascent competitors in order to reduce competition, to the detriment of consumer welfare. But a simple model of how that results in reduced competition must be balanced by a recognition that many companies, especially technology startups, are incentivized to innovate in part by the possibility that they will be bought out. As noted by the authors of the leading study on the welfare effects of alleged “killer acquisitions”,

“it is possible that the presence of an acquisition channel also has a positive effect on welfare if the prospect of entrepreneurial exit through acquisition (by an incumbent) spurs ex-ante innovation …. Whereas in our model entrepreneurs are born with a project and thus do not have to exert effort to come up with an idea, it is plausible that the prospect of later acquisition may motivate the origination of entrepreneurial ideas in the first place… If, on the other hand, killer acquisitions do increase ex-ante innovation, this potential welfare gain will have to be weighed against the ex-post efficiency loss due to reduced competition. Whether the former positive or the latter negative effect dominates will depend on the elasticity of the entrepreneur’s innovation response.”

This analysis suggests that a case-by-case review is necessary if antitrust plaintiffs can show evidence that harm to consumers is likely to occur due to a merger.. But shifting the burden to merging entities, as Applebaum seems to suggest, will come with its own costs. In other words, more economics is needed to understand this area, not less.

Third, Appelbaum’s few concrete examples of harm to consumers resulting from “lax antitrust enforcement” in the United States come from airline mergers and telecommunications. In both cases, he sees the increased attention from competition authorities in Europe compared to the U.S. at the explanation for better outcomes. Neither is a clear example of harm to consumers, nor can be used to show superior antitrust frameworks in Europe versus the United States.

In the case of airline mergers, Appelbaum argues the gains from deregulation of the industry have been largely given away due to poor antitrust enforcement and prices stopped falling, leading to a situation where “[f]or the first time since the dawn of aviation, it is generally cheaper to fly in Europe than in the United States.” This is hard to square with the data. 

As explained in a recent blog post on Truth on the Market by ICLE’s chief economist Eric Fruits: 

While the concentration and profits story fits the antitrust populist narrative, other observations run contrary to [this] conclusion. For example, airline prices, as measured by price indexes, show that changes in U.S. and EU airline prices have fairly closely tracked each other until 2014, when U.S. prices began dropping. Sure, airlines have instituted baggage fees, but the CPI includes taxes, fuel surcharges, airport, security, and baggage fees. It’s not obvious that U.S. consumers are worse off in the so-called era of rising concentration. 

In fact, one recent study, titled Are legacy airline mergers pro- or anti-competitive? Evidence from recent U.S. airline mergers takes it a step further. Data from legacy U.S. airline mergers appears to show they have resulted in pro-consumer benefits once quality-adjusted fares are taken into account:

Our main conclusion is simple: The recent legacy carrier mergers have been associated with pro-competitive outcomes. We find that, on average across all three mergers combined, nonstop overlap routes (on which both merging parties were present pre-merger) experienced statistically significant output increases and statistically insignificant nominal fare decreases relative to non-overlap routes. This pattern also holds when we study each of the three mergers individually. We find that nonstop overlap routes experienced statistically significant output and capacity increases following all three legacy airline mergers, with statistically significant nominal fare decreases following Delta/Northwest and American/USAirways mergers, and statistically insignificant nominal fare decreases following the United/Continental merger… 

One implication of our findings is that any fare increases that have been observed since the mergers were very unlikely to have been caused by the mergers. In particular, our results demonstrate pro-competitive output expansions on nonstop overlap routes indicating reductions in quality-adjusted fares and a lack of significant anti-competitive effects on connecting overlaps. Hence ,our results demonstrate consumer welfare gains on overlap routes, without even taking credit for the large benefits on non-overlap routes (due to new online service, improved service networks at airports, fleet reallocation, etc.). While some of our results indicate that passengers on non-overlap routes also benefited from the mergers, we leave the complete exploration of such network effects for future research.

In other words, neither part of Applebaum’s proposition, that Europe has cheaper fares and that concentration has led to worse outcomes for consumers in the United States, appears to be true. Perhaps the influence of economists over antitrust law in the United States has not been so bad after all.

Appelbaum also touts the lower prices for broadband in Europe as an example of better competition policy over telecommunications in Europe versus the United States. While prices are lower on average in Europe for broadband, this obfuscates distribution of prices depending on speed tiers. UPenn Professor Christopher Yoo’s 2014 study titled U.S. vs. European Broadband Deployment: What Do the Data Say? found:

U.S. broadband was cheaper than European broadband for all speed tiers below 12 Mbps. U.S. broadband was more expensive for higher speed tiers, although the higher cost was justified in no small part by the fact that U.S. Internet users on average consumed 50% more bandwidth than their European counterparts.

Population density also helps explain differences between Europe and the United States. The closer people are together, the easier it is to build out infrastructure like broadband Internet. The United States is considerably more rural than most European countries. As a result, consideration of prices and speed need to be adjusted to reflect those differences. For instance, the FCC’s 2018 International Broadband Data Report shows a move in position from 23rd to 14th for the United States compared to 28 (mostly European) other countries once population density and income are taken into consideration for fixed broadband prices (Model 1 to Model 2). The United States climbs even further to 6th out of the 29 countries studied if data usage is included and 7th if quality (i.e. websites available in language) is taken into consideration (Model 4).

Country Model 1 Model 2 Model 3 Model 4
Price Rank Price Rank Price Rank Price Rank
Australia $78.30 28 $82.81 27 $102.63 26 $84.45 23
Austria $48.04 17 $60.59 15 $73.17 11 $74.02 17
Belgium $46.82 16 $66.62 21 $75.29 13 $81.09 22
Canada $69.66 27 $74.99 25 $92.73 24 $76.57 19
Chile $33.42 8 $73.60 23 $83.81 20 $88.97 25
Czech Republic $26.83 3 $49.18 6 $69.91 9 $60.49 6
Denmark $43.46 14 $52.27 8 $69.37 8 $63.85 8
Estonia $30.65 6 $56.91 12 $81.68 19 $69.06 12
Finland $35.00 9 $37.95 1 $57.49 2 $51.61 1
France $30.12 5 $44.04 4 $61.96 4 $54.25 3
Germany $36.00 12 $53.62 10 $75.09 12 $66.06 11
Greece $35.38 10 $64.51 19 $80.72 17 $78.66 21
Iceland $65.78 25 $73.96 24 $94.85 25 $90.39 26
Ireland $56.79 22 $62.37 16 $76.46 14 $64.83 9
Italy $29.62 4 $48.00 5 $68.80 7 $59.00 5
Japan $40.12 13 $53.58 9 $81.47 18 $72.12 15
Latvia $20.29 1 $42.78 3 $63.05 5 $52.20 2
Luxembourg $56.32 21 $54.32 11 $76.83 15 $72.51 16
Mexico $35.58 11 $91.29 29 $120.40 29 $109.64 29
Netherlands $44.39 15 $63.89 18 $89.51 21 $77.88 20
New Zealand $59.51 24 $81.42 26 $90.55 22 $76.25 18
Norway $88.41 29 $71.77 22 $103.98 27 $96.95 27
Portugal $30.82 7 $58.27 13 $72.83 10 $71.15 14
South Korea $25.45 2 $42.07 2 $52.01 1 $56.28 4
Spain $54.95 20 $87.69 28 $115.51 28 $106.53 28
Sweden $52.48 19 $52.16 7 $61.08 3 $70.41 13
Switzerland $66.88 26 $65.01 20 $91.15 23 $84.46 24
United Kingdom $50.77 18 $63.75 17 $79.88 16 $65.44 10
United States $58.00 23 $59.84 14 $64.75 6 $62.94 7
Average $46.55 $61.70 $80.24 $73.73

Model 1: Unadjusted for demographics and content quality

Model 2: Adjusted for demographics but not content quality

Model 3: Adjusted for demographics and data usage

Model 4: Adjusted for demographics and content quality

Furthermore, investment and buildout are other important indicators of how well the United States is doing compared to Europe. Appelbaum fails to consider all of these factors when comparing the European model of telecommunications to the United States’. Yoo’s conclusion is an appropriate response:

The increasing availability of high-quality data has the promise to effect a sea change in broadband policy. Debates that previously relied primarily on anecdotal evidence and personal assertions of visions for the future can increasingly take place on a firmer empirical footing. 

In particular, these data can resolve the question whether the U.S. is running behind Europe in the broadband race or vice versa. The U.S. and European mapping studies are clear and definitive: These data indicate that the U.S. is ahead of Europe in terms of the availability of Next Generation Access (NGA) networks. The U.S. advantage is even starker in terms of rural NGA coverage and with respect to key technologies such as FTTP and LTE. 

Empirical analysis, both in terms of top-level statistics and in terms of eight country case studies, also sheds light into the key policy debate between facilities-based competition and service-based competition. The evidence again is fairly definitive, confirming that facilities-based competition is more effective in terms of driving broadband investment than service-based competition. 

In other words, Appelbaum relies on bad data to come to his conclusion that listening to economists has been wrong for American telecommunications policy. Perhaps it is his economic assumptions that need to be questioned.

Conclusion

At the end of the day, in antitrust, environmental regulation, and other areas he reviewed, Appelbaum does not believe economic efficiency should be the primary concern anyway.  For instance, he repeats the common historical argument that the purpose of the Sherman Act was to protect small businesses from bigger, and often more efficient, competitors. 

So applying economic analysis to Appelbaum’s claims may itself be an illustration of caring too much about economic models instead of learning “the lessons of history.” But Appelbaum inescapably assumes economic models of its own. And these models appear less grounded in empirical data than those of the economists he derides. There’s no escaping mental models to understand the world. It is just a question of whether we are willing to change our mind if a better way of understanding the world presents itself. As Keynes is purported to have said, “When the facts change, I change my mind. What do you do, sir?”

For all the criticism of economists, there at least appears to be a willingness among them to change their minds, as illustrated by the increasing appreciation for anti-inflationary monetary policy among macroeconomists described in The Economists’ Hour. The question which remains is whether Appelbaum and other critics of the economic way of thinking are as willing to reconsider their strongly held views when they conflict with the evidence.

In Amazon, Antitrust & Competition, Apple, Broadband, Economic Theory, European Union, Facebook, Google, International, Platforms, Regulation, Taxes, Telecommunications, Truth on the Market, United Kingdom , , , , , , , , , , , ,
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Does Apple’s “Discrimination” Against Rival Apps in the App Store harm Consumers?

Ben Sperry —  16 October 2019

A spate of recent newspaper investigations and commentary have focused on Apple allegedly discriminating against rivals in the App Store. The underlying assumption is that Apple, as a vertically integrated entity that operates both a platform for third-party apps and also makes it own apps, is acting nefariously whenever it “discriminates” against rival apps through prioritization, enters into popular app markets, or charges a “tax” or “surcharge” on rival apps. 

For most people, the word discrimination has a pejorative connotation of animus based upon prejudice: racism, sexism, homophobia. One of the definitions you will find in the dictionary reflects this. But another definition is a lot less charged: the act of making or perceiving a difference. (This is what people mean when they say that a person has a discriminating palate, or a discriminating taste in music, for example.)

In economics, discrimination can be a positive attribute. For instance, effective price discrimination can result in wealthier consumers paying a higher price than less well off consumers for the same product or service, and it can ensure that products and services are in fact available for less-wealthy consumers in the first place. That would seem to be a socially desirable outcome (although under some circumstances, perfect price discrimination can be socially undesirable). 

Antitrust law rightly condemns conduct only when it harms competition and not simply when it harms a competitor. This is because it is competition that enhances consumer welfare, not the presence or absence of a competitor — or, indeed, the profitability of competitors. The difficult task for antitrust enforcers is to determine when a vertically integrated firm with “market power” in an upstream market is able to effectively discriminate against rivals in a downstream market in a way that harms consumers. 

Even assuming the claims of critics are true, alleged discrimination by Apple against competitor apps in the App Store may harm those competitors, but it doesn’t necessarily harm either competition or consumer welfare.

The three potential antitrust issues facing Apple can be summarized as:

There is nothing new here economically. All three issues are analogous to claims against other tech companies. But, as I detail below, the evidence to establish any of these claims at best represents harm to competitors, and fails to establish any harm to the competitive process or to consumer welfare.

Prioritization

Antitrust enforcers have rejected similar prioritization claims against Google. For instance, rivals like Microsoft and Yelp have funded attacks against Google, arguing the search engine is harming competition by prioritizing its own services in its product search results over competitors. As ICLE and affiliated scholars have pointed out, though, there is nothing inherently harmful to consumers about such prioritization. There are also numerous benefits in platforms directly answering queries, even if it ends up directing users to platform-owned products or services.

As Geoffrey Manne has observed:

there is good reason to believe that Google’s decision to favor its own content over that of other sites is procompetitive. Beyond determining and ensuring relevance, Google surely has the prerogative to vigorously compete and to decide how to design its products to keep up with a changing market. In this case, that means designing, developing, and offering its own content to partially displace the original “ten blue links” design of its search results page and offer its own answers to users’ queries in its stead. 

Here, the antitrust case against Apple for prioritization is similarly flawed. For example, as noted in a recent article in the WSJ, users often use the App Store search in order to find apps they already have installed:

“Apple customers have a very strong connection to our products and many of them use search as a way to find and open their apps,” Apple said in a statement. “This customer usage is the reason Apple has strong rankings in search, and it’s the same reason Uber, Microsoft and so many others often have high rankings as well.” 

If a substantial portion of searches within the App Store are for apps already on the iPhone, then showing the Apple app near the top of the search results could easily be consumer welfare-enhancing. 

Apple is also theoretically leaving money on the table by prioritizing its (already pre-loaded) apps over third party apps. If its algorithm promotes its own apps over those that may earn it a 30% fee — additional revenue — the prioritization couldn’t plausibly be characterized as a “benefit” to Apple. Apple is ultimately in the business of selling hardware. Losing customers of the iPhone or iPad by prioritizing apps consumers want less would not be a winning business strategy.

Further, it stands to reason that those who use an iPhone may have a preference for Apple apps. Such consumers would be naturally better served by seeing Apple’s apps prioritized over third-party developer apps. And if consumers do not prefer Apple’s apps, rival apps are merely seconds of scrolling away.

Moreover, all of the above assumes that Apple is engaging in sufficiently pervasive discrimination through prioritzation to have a major impact on the app ecosystem. But substantial evidence exists that the universe of searches for which Apple’s algorithm prioritizes Apple apps is small. For instance, most searches are for branded apps already known by the searcher:

Keywords: how many are brands?

  • Top 500: 58.4%
  • Top 400: 60.75%
  • Top 300: 68.33%
  • Top 200: 80.5%
  • Top 100: 86%
  • Top 50: 90%
  • Top 25: 92%
  • Top 10: 100%

This is corroborated by data from the NYT’s own study, which suggests Apple prioritized its own apps first in only roughly 1% of the overall keywords queried: 

Whatever the precise extent of increase in prioritization, it seems like any claims of harm are undermined by the reality that almost 99% of App Store results don’t list Apple apps first. 

The fact is, very few keyword searches are even allegedly affected by prioritization. And the algorithm is often adjusting to searches for apps already pre-loaded on the device. Under these circumstances, it is very difficult to conclude consumers are being harmed by prioritization in search results of the App Store.

Entry

The issue of Apple building apps to compete with popular apps in its marketplace is similar to complaints about Amazon creating its own brands to compete with what is sold by third parties on its platform. For instance, as reported multiple times in the Washington Post:

Clue, a popular app that women use to track their periods, recently rocketed to the top of the App Store charts. But the app’s future is now in jeopardy as Apple incorporates period and fertility tracking features into its own free Health app, which comes preinstalled on every device. Clue makes money by selling subscriptions and services in its free app. 

However, there is nothing inherently anticompetitive about retailers selling their own brands. If anything, entry into the market is normally procompetitive. As Randy Picker recently noted with respect to similar claims against Amazon: 

The heart of this dynamic isn’t new. Sears started its catalogue business in 1888 and then started using the Craftsman and Kenmore brands as in-house brands in 1927. Sears was acquiring inventory from third parties and obviously knew exactly which ones were selling well and presumably made decisions about which markets to enter and which to stay out of based on that information. Walmart, the nation’s largest retailer, has a number of well-known private brands and firms negotiating with Walmart know full well that Walmart can enter their markets, subject of course to otherwise applicable restraints on entry such as intellectual property laws… I think that is possible to tease out advantages that a platform has regarding inventory experimentation. It can outsource some of those costs to third parties, though sophisticated third parties should understand where they can and cannot have a sustainable advantage given Amazon’s ability to move to build-or-bought first-party inventory. We have entire bodies of law— copyright, patent, trademark and more—that limit the ability of competitors to appropriate works, inventions and symbols. Those legal systems draw very carefully considered lines regarding permitted and forbidden uses. And antitrust law generally favors entry into markets and doesn’t look to create barriers that block firms, large or small, from entering new markets.

If anything, Apple is in an even better position than Amazon. Apple invests revenue in app development, not because the apps themselves generate revenue, but because it wants people to use the hardware, i.e. the iPhones, iPads, and Apple Watches. The reason Apple created an App Store in the first place is because this allows Apple to make more money from selling devices. In order to promote security on those devices, Apple institutes rules for the App Store, but it ultimately decides whether to create its own apps and provide access to other apps based upon its desire to maximize the value of the device. If Apple chooses to create free apps in order to improve iOS for users and sell more hardware, it is not a harm to competition.

Apple’s ability to enter into popular app markets should not be constrained unless it can be shown that by giving consumers another choice, consumers are harmed. As noted above, most searches in the App Store are for branded apps to begin with. If consumers already know what they want in an app, it hardly seems harmful for Apple to offer — and promote — its own, additional version as well. 

In the case of Clue, if Apple creates a free health app, it may hurt sales for Clue. But it doesn’t hurt consumers who want the functionality and would prefer to get it from Apple for free. This sort of product evolution is not harming competition, but enhancing it. And, it must be noted, Apple doesn’t exclude Clue from its devices. If, indeed, Clue offers a better product, or one that some users prefer, they remain able to find it and use it.

The so-called App Store “Tax”

The argument that Apple has an unfair competitive advantage over rival apps which have to pay commissions to Apple to be on the App Store (a “tax” or “surcharge”) has similarly produced no evidence of harm to consumers. 

Apple invested a lot into building the iPhone and the App Store. This infrastructure has created an incredibly lucrative marketplace for app developers to exploit. And, lest we forget a point fundamental to our legal system, Apple’s App Store is its property. 

The WSJ and NYT stories give the impression that Apple uses its commissions on third party apps to reduce competition for its own apps. However, this is inconsistent with how Apple charges its commission. 

For instance, Apple doesn’t charge commissions on free apps, which make up 84% of the App Store. Apple also doesn’t charge commissions for apps that are free to download but are supported by advertising — including hugely popular apps like Yelp, Buzzfeed, Instagram, Pinterest, Twitter, and Facebook. Even apps which are “readers” where users purchase or subscribe to content outside the app but use the app to access that content are not subject to commissions, like Spotify, Netflix, Amazon Kindle, and Audible. Apps for “physical goods and services” — like Amazon, Airbnb, Lyft, Target, and Uber — are also free to download and are not subject to commissions. The class of apps which are subject to a 30% commission include:

  • paid apps (like many games),
  • free apps that then have in-app purchases (other games and services like Skype and TikTok), 
  • and free apps with digital subscriptions (Pandora, Hulu, which have 30% commission first year and then 15% in subsequent years), and
  • cross-platform apps (Dropbox, Hulu, and Minecraft) which allow for digital goods and services to be purchased in-app and Apple collects commission on in-app sales, but not sales from other platforms. 

Despite protestations to the contrary, these costs are hardly unreasonable: third party apps receive the benefit not only of being in Apple’s App Store (without which they wouldn’t have any opportunity to earn revenue from sales on Apple’s platform), but also of the features and other investments Apple continues to pour into its platform — investments that make the ecosystem better for consumers and app developers alike. There is enormous value to the platform Apple has invested in, and a great deal of it is willingly shared with developers and consumers.  It does not make it anticompetitive to ask those who use the platform to pay for it. 

In fact, these benefits are probably even more important for smaller developers rather than bigger ones who can invest in the necessary back end to reach consumers without the App Store, like Netflix, Spotify, and Amazon Kindle. For apps without brand reputation (and giant marketing budgets), the ability for consumers to trust that downloading the app will not lead to the installation of malware (as often occurs when downloading from the web) is surely essential to small developers’ ability to compete. The App Store offers this.

Despite the claims made in Spotify’s complaint against Apple, Apple doesn’t have a duty to deal with app developers. Indeed, Apple could theoretically fill the App Store with only apps that it developed itself, like Apple Music. Instead, Apple has opted for a platform business model, which entails the creation of a new outlet for others’ innovation and offerings. This is pro-consumer in that it created an entire marketplace that consumers probably didn’t even know they wanted — and certainly had no means to obtain — until it existed. Spotify, which out-competed iTunes to the point that Apple had to go back to the drawing board and create Apple Music, cannot realistically complain that Apple’s entry into music streaming is harmful to competition. Rather, it is precisely what vigorous competition looks like: the creation of more product innovation, lower prices, and arguably (at least for some) higher quality.

Interestingly, Spotify is not even subject to the App Store commission. Instead, Spotify offers a work-around to iPhone users to obtain its premium version without ads on iOS. What Spotify actually desires is the ability to sell premium subscriptions to Apple device users without paying anything above the de minimis up-front cost to Apple for the creation and maintenance of the App Store. It is unclear how many potential Spotify users are affected by the inability to directly buy the ad-free version since Spotify discontinued offering it within the App Store. But, whatever the potential harm to Spotify itself, there’s little reason to think consumers or competition bear any of it. 

Conclusion

There is no evidence that Apple’s alleged “discrimination” against rival apps harms consumers. Indeed, the opposite would seem to be the case. The regulatory discrimination against successful tech platforms like Apple and the App Store is far more harmful to consumers.

In Amazon, Antitrust & Competition, Apple, Copyright, Facebook, Google, Intellectual Property, Patent, Platforms, Price Discrimination, Telecommunications, Truth on the Market, Twitter, Wireless , , , , , , , , , , , ,
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Breaking up Amazon? Platforms, Private Labels and Entry

Randal C. Picker —  17 July 2019

[This post is the first in an ongoing symposium on “Should We Break Up Big Tech?” that will feature analysis and opinion from various perspectives.]

[This post is authored by Randal C. Picker, James Parker Hall Distinguished Service Professor of Law at The University of Chicago Law School]

The European Commission just announced that it is investigating Amazon. The Commission’s concern is that Amazon is simultaneously acting as a ref and player: Amazon sells goods directly as a first party but also operates a platform on which it hosts goods sold by third parties (resellers) and those goods sometimes compete. And, next step, Amazon is said to choose which markets to enter as a private-label seller at least in part by utilizing information it gleans from the third-party sales it hosts.

Assuming there is a problem …

Were Amazon’s activities thought to be a problem, the natural remedies, whether through antitrust or more direct sector, industry-specific regulation, might be to bar Amazon from both being a direct seller and a platform. India has already passed a statute that effectuates some of those results, though it seems targeted at non-domestic companies.

A broad regulation that barred Amazon from being simultaneously a seller of first-party inventory and of third-party inventory presumably would lead to a dissolution of the company into separate companies in each of those businesses. A different remedy—a classic that goes back at least as far in the United States as the 1887 Commerce Act—would be to impose some sort of nondiscrimination obligation on Amazon and perhaps to couple that with some sort of business-line restriction—a quarantine—that would bar Amazon from entering markets though private labels.

But is there a problem?

Private labels have been around a long time and large retailers have faced buy-vs.-build decisions along the way. Large, sophisticated retailers like A&P in a different era and Walmart and Costco today, just to choose two examples, are constantly rebalancing their inventory between that which they buy from third parties and that which they produce for themselves. As I discuss below, being a platform matters for the buy-vs.-build decision, but it is far from clear that being both a store and a platform simultaneously matters importantly for how we should look at these issues.

Of course, when Amazon opened for business in July 1995 it didn’t quite face these issues immediately. Amazon sold books—it billed itself as “Earth’s Biggest Bookstore”—but there is no private label possibility for books, no effort to substitute into just selling say “The Wit and Wisdom of Jeff Bezos.” You could of course build an ebooks platform—call that a Kindle—but that would be a decade or so down the road. But as Amazon expanded into more pedestrian goods, it would, like other retailers, naturally make decisions about which inventory to source internally and which to buy from third parties.

In September 1999, Amazon opened up what was being described as an online mall. Amazon called it zShops and the idea was clear: many customers came to Amazon to buy things that Amazon wasn’t offering and Amazon would bring that audience and a variety of transaction services to third parties. Third parties would in turn pay Amazon a monthly fee and a variety of transaction fees. Amazon CEO Jeff Bezos noted (as reported in The Wall Street Journal) that those prices had been set in a way to make Amazon generally “neutral” in choosing whether to enter a market through first-party inventory or through third-party inventory.

Note that a traditional retailer and the original Amazon faced a natural question which was which goods to carry in inventory? When Amazon opened its platform, Amazon changed powerfully the question of which goods to stock. Even a Walmart Supercenter has limited physical shelf space and has to take something off of the shelves to stock a new product. By becoming a platform, Amazon largely outsourced the product selection and shelf space allocation question to third parties. The new Amazon resellers would get access to Amazon’s substantial customer base—its audience—and to a variety of transactional services that Amazon would provide them.

An online retailer has some real informational advantages over physical stores, as the online retailer sees every product that customers search for. It is much harder, though not impossible, for a physical store to capture that information. But as Amazon became a platform it would no longer just observe search queries for goods but it would see actual sales by the resellers. And a physical store isn’t a platform in the way that Amazon is as the physical store is constrained by limited shelf space. But the real target here is the marginal information Amazon gets from third-party sales relative to what it would see from product searches at Amazon, its own first-party sales and from clicks on the growing amount of advertising it sells on its website.

All of that might matter for running product and inventory experiments and the corresponding pace of learning what goods customers want at what price. A physical store has to remove some item from its shelves to experiment with a new item and has to buy the item to stock it, though how much of a risk it is taking there will depend on whether the retailer can return unsold goods to the inventory supplier. A platform retailer like Amazon doesn’t have to make those tradeoffs and an online mall could offer almost an infinite inventory of items. A store or product ready for every possible search.

A possible strategy

All of this suggests a possible business strategy for a platform: let third parties run inventory experiments where the platform gets to see the results. Products that don’t sell are failed experiments and the platform doesn’t enter those markets. But when a third-party sells a product in real numbers, start selling that product as first-party inventory. Amazon then would face buy vs. build on that and that should make clear that the private brands question is distinct from the question of whether Amazon can leverage third-party reseller information to their detriment. It can certainly do just that by buying competing goods from a wholesaler and stocking that item as first-party Amazon inventory.

If Amazon is playing this strategy, it seems to be playing it slowly and poorly. Amazon CEO Jeff Bezos includes a letter each year to open Amazon’s annual report to shareholders. In the 2018 letter, Bezos opened by noting that “[s]omething strange and remarkable has happened over the last 20 years.” What was that? In 1999, the relevant number was 3%; five years later, in 2004, it was 25%, then 31% in 2009, 49% in 2014 and 58% in 2018. These were the percentage of physical gross merchandise sales by third-party sellers through Amazon. In 1993, 97% of Amazon’s sales were of its own first-party inventory but the percentage of third-party sales had steadily risen over 20 years and over the last four years of that period, third-party inventory sales exceeded Amazon’s own internal sales. As Bezos noted, Amazon’s first-party sales had grown dramatically—a 25% annual compound growth rate over that period—but in 2018, total third-party sales revenues were $160 billion while Amazon’s own first-party sales were at $117 billion. Bezos had a perspective on all of that—“Third-party sellers are kicking our first party butt. Badly.”—but if you believed the original vision behind creating the Amazon platform, Amazon should be indifferent between first-party sales and third-party sales, as long as all of that happens at Amazon.

This isn’t new

Given all of that, it isn’t crystal clear to me why Amazon gets as much attention as it does. The heart of this dynamic isn’t new. Sears started its catalogue business in 1888 and then started using the Craftsman and Kenmore brands as in-house brands in 1927. Sears was acquiring inventory from third parties and obviously knew exactly which ones were selling well and presumably made decisions about which markets to enter and which to stay out of based on that information. Walmart, the nation’s largest retailer, has a number of well-known private brands and firms negotiating with Walmart know full well that Walmart can enter their markets, subject of course to otherwise applicable restraints on entry such as intellectual property laws.

As suggested above, I think that is possible to tease out advantages that a platform has regarding inventory experimentation. It can outsource some of those costs to third parties, though sophisticated third parties should understand where they can and cannot have a sustainable advantage given Amazon’s ability to move to build-or-bought first-party inventory. We have entire bodies of law— copyright, patent, trademark and more—that limit the ability of competitors to appropriate works, inventions and symbols. Those legal systems draw very carefully considered lines regarding permitted and forbidden uses. And antitrust law generally favors entry into markets and doesn’t look to create barriers that block firms, large or small, from entering new markets.

In conclusion

There is a great deal more to say about a company as complex as Amazon, but two thoughts in closing. One story here is that Amazon has built a superior business model in combining first-party and third-party inventory sales and that is exactly the kind of business model innovation that we should applaud. Amazon has enjoyed remarkable growth but Walmart is still vastly larger than Amazon (ballpark numbers for 2018 are roughly $510 billion in net sales for Walmart vs. roughly $233 billion for Amazon – including all 3rd party sales, as well as Amazon Web Services). The second story is the remarkable growth of sales by resellers at Amazon.

If Amazon is creating private-label goods based on information it sees on its platform, nothing suggests that it is doing that particularly rapidly. And even if it is entering those markets, it still might do that were we to break up Amazon and separate the platform piece of Amazon (call it Amazon Platform) from the original first-party version of Amazon (say Amazon Classic) as traditional retailers have for a very, very long time been making buy-vs.-build decisions on their first-party inventory and using their internal information to make those decisions.

In Amazon, Copyright, European Union, Intellectual Property, International, Patent, Platforms, Should We Break Up Big Tech? Symposium, Truth on the Market , , , , ,
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Is Amazon Guilty of Predatory Pricing?

Kristian Stout & Alec Stapp —  7 May 2019

In 2014, Benedict Evans, a venture capitalist at Andreessen Horowitz, wrote “Why Amazon Has No Profits (And Why It Works),” a blog post in which he tried to explain Amazon’s business model. He began with a chart of Amazon’s revenue and net income that has now become (in)famous:

Source: Benedict Evans

A question inevitably followed in antitrust circles: How can a company that makes so little profit on so much revenue be worth so much money? It must be predatory pricing!

Predatory pricing is a rather rare anticompetitive practice because the “predator” runs the risk of bankrupting itself in the process of trying to drive rivals out of business with below-cost pricing. Furthermore, even if a predator successfully clears the field of competition, in developed markets with deep capital markets, keeping out new entrants is extremely unlikely.

Nonetheless, in those rare cases where plaintiffs can demonstrate that a firm actually has a viable scheme to drive competitors from the market with prices that are “too low” and has the ability to recoup its losses once it has cleared the market of those competitors, plaintiffs (including the DOJ) can prevail in court.

In other words, whoa if true.

Khan’s Predatory Pricing Accusation

In 2017, Lina Khan, then a law student at Yale, published “Amazon’s Antitrust Paradox” in a note for the Yale Law Journal and used Evans’ chart as supporting evidence that Amazon was guilty of predatory pricing. In the abstract she says, “Although Amazon has clocked staggering growth, it generates meager profits, choosing to price below-cost and expand widely instead.”

But if Amazon is selling below-cost, where does the money come from to finance those losses?

In her article, Khan hinted at two potential explanations: (1) Amazon is using profits from the cloud computing division (AWS) to cross-subsidize losses in the retail division or (2) Amazon is using money from investors to subsidize short-term losses:

Recently, Amazon has started reporting consistent profits, largely due to the success of Amazon Web Services, its cloud computing business. Its North America retail business runs on much thinner margins, and its international retail business still runs at a loss. But for the vast majority of its twenty years in business, losses—not profits—were the norm. Through 2013, Amazon had generated a positive net income in just over half of its financial reporting quarters. Even in quarters in which it did enter the black, its margins were razor-thin, despite astounding growth.

…

Just as striking as Amazon’s lack of interest in generating profit has been investors’ willingness to back the company. With the exception of a few quarters in 2014, Amazon’s shareholders have poured money in despite the company’s penchant for losses.

…

Revising predatory pricing doctrine to reflect the economics of platform markets, where firms can sink money for years given unlimited investor backing, would require abandoning the recoupment requirement in cases of below-cost pricing by dominant platforms.

Below-Cost Pricing Not Subsidized by Investors

But neither explanation withstands scrutiny. First, the money is not from investors. Amazon has not raised equity financing since 2003. Nor is it debt financing: The company’s net debt position has been near-zero or negative for its entire history (excluding the Whole Foods acquisition):

Source: Benedict Evans

Amazon does not require new outside financing because it has had positive operating cash flow since 2002:

Notably for a piece of analysis attempting to explain Amazon’s business practices, the text of Khan’s 93-page law review article does not include the word “cash” even once.

Below-Cost Pricing Not Cross-Subsidized by AWS

Source: The Information

As Priya Anand observed in a recent piece for The Information, since Amazon started breaking out AWS in its financials, operating income for the North America retail business has been significantly positive:

But [Khan] underplays its retail profits in the U.S., where the antitrust debate is focused. As the above chart shows, its North America operation has been profitable for years, and its operating income has been on the rise in recent quarters. While its North America retail operation has thinner margins than AWS, it still generated $2.84 billion in operating income last year, which isn’t exactly a rounding error compared to its $4.33 billion in AWS operating income.

Below-Cost Pricing in Retail Also Known as “Loss Leader” Pricing

Okay, so maybe Amazon isn’t using below-cost pricing in aggregate in its retail division. But it still could be using profits from some retail products to cross-subsidize below-cost pricing for other retail products (e.g., diapers), with the intention of driving competitors out of business to capture monopoly profits. This is essentially what Khan claims happened in the Diapers.com (Quidsi) case. But in the retail industry, diapers are explicitly cited as a loss leader that help retailers to develop a customer relationship with mothers in the hopes of selling them a higher volume of products over time. This is exactly what the founders of Diapers.com told Inc Magazine in a 2012 interview (emphasis added):

We saw brick-and-mortar stores, the Wal-Marts and Targets of the world, using these products to build relationships with mom and the end consumer, bringing them into the store and selling them everything else. So we thought that was an interesting model and maybe we could replicate that online. And so we started with selling the loss leader product to basically build a relationship with mom. And once they had the passion for the brand and they were shopping with us on a weekly or a monthly basis that they’d start to fall in love with that brand. We were losing money on every box of diapers that we sold. We weren’t able to buy direct from the manufacturers.

An anticompetitive scheme could be built into such bundling, but in many if not the overwhelming majority of these cases, consumers are the beneficiaries of lower prices and expanded output produced by these arrangements. It’s hard to definitively say whether any given firm that discounts its products is actually pricing below average variable cost (“AVC”) without far more granular accounting ledgers than are typically  maintained. This is part of the reason why these cases can be so hard to prove.

A successful predatory pricing strategy also requires blocking market entry when the predator eventually raises prices. But the Diapers.com case is an explicit example of repeated entry that would defeat recoupment. In an article for the American Enterprise Institute, Jeffrey Eisenach shares the rest of the story following Amazon’s acquisition of Diapers.com:

Amazon’s conduct did not result in a diaper-retailing monopoly. Far from it. According to Khan, Amazon had about 43 percent of online sales in 2016 — compared with Walmart at 23 percent and Target with 18 percent — and since many people still buy diapers at the grocery store, real shares are far lower.

…

In the end, Quidsi proved to be a bad investment for Amazon: After spending $545 million to buy the firm and operating it as a stand-alone business for more than six years, it announced in April 2017 it was shutting down all of Quidsi’s operations, Diapers.com included. In the meantime, Quidsi’s founders poured the proceeds of the Amazon sale into a new online retailer — Jet.com — which was purchased by Walmart in 2016 for $3.3 billion. Jet.com cofounder Marc Lore now runs Walmart’s e-commerce operations and has said publicly that his goal is to surpass Amazon as the top online retailer.

Sussman’s Predatory Pricing Accusation

Earlier this year, Shaoul Sussman, a law student at Fordham University, published “Prime Predator: Amazon and the Rationale of Below Average Variable Cost Pricing Strategies Among Negative-Cash Flow Firms” in the Journal of Antitrust Enforcement. The article, which was written up by David Dayen for In These Times, presents a novel two-part argument for how Amazon might be profitably engaging in predatory pricing without raising prices:

  1. Amazon’s “True” Cash Flow Is Negative

Sussman argues that the company has been inflating its free cash flow numbers by excluding “capital leases.” According to Sussman, “If all of those expenses as detailed in its statements are accounted for, Amazon experienced a negative cash outflow of $1.461 billion in 2017.” Even though it’s not dispositive of predatory pricing on its own, Sussman believes that a negative free cash flow implies the company has been selling below-cost to gain market share.

2. Amazon Recoups Losses By Lowering AVC, Not By Raising Prices

Instead of raising prices to recoup losses from pricing below-cost, Sussman argues that Amazon flies under the antitrust radar by keeping consumer prices low and progressively decreasing AVC, ostensibly through using its monopsony power to offload costs on suppliers and partners (although this point is not fully explored in his piece).

But Sussman’s argument contains errors in both legal reasoning as well as its underlying empirical assumptions.

Below-cost pricing?

While there are many different ways to calculate the “cost” of a product or service, generally speaking, “below-cost pricing” means the price is less than marginal cost or AVC. Typically, courts tend to rely on AVC when dealing with predatory pricing cases. And as Herbert Hovenkamp has noted, proving that a price falls below the AVC is exceedingly difficult, particularly when dealing with firms in dynamic markets that sell a number of differentiated but complementary goods or services. Amazon, the focus of Sussman’s article, is a useful example here.

When products are complements, or can otherwise be bundled, firms may also be able to offer discounts that are unprofitable when selling single items. In business this is known as the “razor and blades model” (i.e., sell the razor handle below-cost one time and recoup losses on future sales of blades — although it’s not clear if this ever actually happens). Printer manufacturers are also an oft-cited example here, where printers are often sold below AVC in the expectation that the profits will be realized on the ongoing sale of ink. Amazon’s Kindle functions similarly: Amazon sells the Kindle around its AVC, ostensibly on the belief that it will realize a profit on selling e-books in the Kindle store.

Yet, even ignoring this common and broadly inoffensive practice, Sussman’s argument is odd. In essence, he claims that Amazon is concealing some of its costs in the form of capital leases in an effort to conceal its below-AVC pricing while it works to simultaneously lower its real AVC below the prices it charges consumers. At the end of this process, once its real AVC is actually sufficiently below consumers prices, it will (so the argument goes) be in the position of a monopolist reaping monopoly profits.

The problem with this argument should be immediately apparent. For the moment, let’s ignore the classic recoupment problem where new entrants will be drawn into the market to win some of those monopoly prices based on the new AVC that is possible. The real problem with his logic is that Sussman basically suggests that if Amazon sharply lowers AVC — that is it makes production massively more efficient — and then does not drop prices, they are a “predator.” But by pricing below its AVC in the first place, consumers in essence were given a loan by Amazon — they were able to enjoy what Sussman believes are radically low prices while Amazon works to actually make those prices possible through creating production efficiencies. It seems rather strange to punish a firm for loaning consumers a large measure of wealth. Its doubly odd when you then re-factor the recoupment problem back in: as soon as other firms figure out that a lower AVC is possible, they will enter the market and bid away any monopoly profits from Amazon.

Sussman’s Technical Analysis Is Flawed

While there are issues with Sussman’s general theory of harm, there are also some specific problems with his technical analysis of Amazon’s financial statements.

Capital Leases Are a Fixed Cost

First, capital leases should be not be included in cost calculations for a predatory pricing case because they are fixed — not variable — costs. Again, “below-cost” claims in predatory pricing cases generally use AVC (and sometimes marginal cost) as relevant cost measures.

Capital Leases Are Mostly for Server Farms

Second, the usual story is that Amazon uses its wildly-profitable Amazon Web Services (AWS) division to subsidize predatory pricing in its retail division. But Amazon’s “capital leases” — Sussman’s hidden costs in the free cash flow calculations — are mostly for AWS capital expenditures (i.e., server farms).

According to the most recent annual report: “Property and equipment acquired under capital leases was $5.7 billion, $9.6 billion, and $10.6 billion in 2016, 2017, and 2018, with the increase reflecting investments in support of continued business growth primarily due to investments in technology infrastructure for AWS, which investments we expect to continue over time.”

In other words, any adjustments to the free cash flow numbers for capital leases would make Amazon Web Services appear less profitable, and would not have a large effect on the accounting for Amazon’s retail operation (the only division thus far accused of predatory pricing).

Look at Operating Cash Flow Instead of Free Cash Flow

Again, while cash flow measures cannot prove or disprove the existence of predatory pricing, a positive cash flow measure should make us more skeptical of such accusations. In the retail sector, operating cash flow is the appropriate metric to consider. As shown above, Amazon has had positive (and increasing) operating cash flow since 2002.

Your Theory of Harm Is Also Known as “Investment”

Third, in general, Sussman’s novel predatory pricing theory is indistinguishable from pro-competitive behavior in an industry with high fixed costs. From the abstract (emphasis added):

[N]egative cash flow firm[s] … can achieve greater market share through predatory pricing strategies that involve long-term below average variable cost prices … By charging prices in the present reflecting future lower costs based on prospective technological and scale efficiencies, these firms are able to rationalize their predatory pricing practices to investors and shareholders.

“’Charging prices in the present reflecting future lower costs based on prospective technological and scale efficiencies” is literally what it means to invest in capex and R&D.

Sussman’s paper presents a clever attempt to work around the doctrinal limitations on predatory pricing. But, if courts seriously adopt an approach like this, they will be putting in place a legal apparatus that quite explicitly focuses on discouraging investment. This is one of the last things we should want antitrust law to be doing.

In Amazon, Antitrust & Competition, Google, Justice Department, Platforms, Telecommunications, Truth on the Market, Twitter, Wireless , , , , , ,
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Putting Politics over Policy at the FCC

Manne, Hurwitz & Stout —  4 October 2018

FCC Commissioner Rosenworcel penned an article this week on the doublespeak coming out of the current administration with respect to trade and telecom policy. On one hand, she argues, the administration has proclaimed 5G to be an essential part of our future commercial and defense interests. But, she tells us, the administration has, on the other hand, imposed tariffs on Chinese products that are important for the development of 5G infrastructure, thereby raising the costs of roll-out. This is a sound critique: regardless where one stands on the reasonableness of tariffs, they unquestionably raise the prices of goods on which they are placed, and raising the price of inputs to the 5G ecosystem can only slow down the pace at which 5G technology is deployed.

Unfortunately, Commissioner Rosenworcel’s fervor for advocating the need to reduce the costs of 5G deployment seems animated by the courageous act of a Democratic commissioner decrying the policies of a Republican President and is limited to a context where her voice lacks any power to actually affect policy. Even as she decries trade barriers that would incrementally increase the costs of imported communications hardware, she staunchly opposes FCC proposals that would dramatically reduce the cost of deploying next generation networks.

Given the opportunity to reduce the costs of 5G deployment by a factor far more significant than that by which tariffs will increase them, her preferred role as Democratic commissioner is that of resistance fighter. She acknowledges that “we will need 800,000 of these small cells to stay competitive in 5G” — a number significantly above the “the roughly 280,000 traditional cell towers needed to blanket the nation with 4G”.  Yet, when she has had the opportunity to join the Commission on speeding deployment, she has instead dissented. Party over policy.

In this year’s “Historical Preservation” Order, for example, the Commission voted to expedite deployment on non-Tribal lands, and to exempt small cell deployments from certain onerous review processes under both the National Historic Preservation Act and the National Environmental Policy Act of 1969. Commissioner Rosenworcel dissented from the Order, claiming that that the FCC has “long-standing duties to consult with Tribes before implementing any regulation or policy that will significantly or uniquely affect Tribal governments, their land, or their resources.” Never mind that the FCC engaged in extensive consultation with Tribal governments prior to enacting this Order.

Indeed, in adopting the Order, the Commission found that the Order did nothing to disturb deployment on Tribal lands at all, and affected only the ability of Tribal authorities to reach beyond their borders to require fees and lengthy reviews for small cells on lands in which Tribes could claim merely an “interest.”

According to the Order, the average number of Tribal authorities seeking to review wireless deployments in a given geographic area nearly doubled between 2008 and 2017. During the same period, commenters consistently noted that the fees charged by Tribal authorities for review of deployments increased dramatically.

One environmental consultant noted that fees for projects that he was involved with increased from an average of $2,000.00 in 2011 to $11,450.00 in 2017. Verizon’s fees are $2,500.00 per small cell site just for Tribal review. Of the 8,100 requests that Verizon submitted for tribal review between 2012 and 2015, just 29 ( 0.3%) resulted in a finding that there would be an adverse effect on tribal historic properties. That means that Verizon paid over $20 million to Tribal authorities over that period for historic reviews that resulted in statistically nil action. Along the same lines, Sprint’s fees are so high that it estimates that “it could construct 13,408 new sites for what 10,000 sites currently cost.”

In other words, Tribal review practices — of deployments not on Tribal land — impose a substantial tariff upon 5G deployment, increasing its cost and slowing its pace.

There is a similar story in the Commission’s adoption of, and Commissioner Rosenworcel’s partial dissent from, the recent Wireless Infrastructure Order.  Although Commissioner Rosenworcel offered many helpful suggestions (for instance, endorsing the OTARD proposal that Brent Skorup has championed) and nodded to the power of the market to solve many problems, she also dissented on central parts of the Order. Her dissent shows an unfortunate concern for provincial, political interests and places those interests above the Commission’s mission of ensuring timely deployment of advanced wireless communication capabilities to all Americans.

Commissioner Rosenworcel’s concern about the Wireless Infrastructure Order is that it would prevent state and local governments from imposing fees sufficient to recover costs incurred by the government to support wireless deployments by private enterprise, or from imposing aesthetic requirements on those deployments. Stated this way, her objections seem almost reasonable: surely local government should be able to recover the costs they incur in facilitating private enterprise; and surely local government has an interest in ensuring that private actors respect the aesthetic interests of the communities in which they build infrastructure.

The problem for Commissioner Rosenworcel is that the Order explicitly takes these concerns into account:

[W]e provide guidance on whether and in what circumstances aesthetic requirements violate the Act. This will help localities develop and implement lawful rules, enable providers to comply with these requirements, and facilitate the resolution of disputes. We conclude that aesthetics requirements are not preempted if they are (1) reasonable, (2) no more burdensome than those applied to other types of infrastructure deployments, and (3) objective and published in advance

It neither prohibits localities from recovering costs nor imposing aesthetic requirements. Rather, it requires merely that those costs and requirements be reasonable. The purpose of the Order isn’t to restrict localities from engaging in reasonable conduct; it is to prohibit them from engaging in unreasonable, costly conduct, while providing guidance as to what cost recovery and aesthetic considerations are reasonable (and therefore permissible).

The reality is that localities have a long history of using cost recovery — and especially “soft” or subjective requirements such as aesthetics — to extract significant rents from communications providers. In the 1980s this slowed the deployment and increased the costs of cable television. In the 2000s this slowed the deployment and increase the cost of of fiber-based Internet service. Today this is slowing the deployment and increasing the costs of advanced wireless services. And like any tax — or tariff — the cost is ultimately borne by consumers.

Although we are broadly sympathetic to arguments about local control (and other 10th Amendment-related concerns), the FCC’s goal in the Wireless Infrastructure Order was not to trample upon the autonomy of small municipalities; it was to implement a reasonably predictable permitting process that would facilitate 5G deployment. Those affected would not be the small, local towns attempting to maintain a desirable aesthetic for their downtowns, but large and politically powerful cities like New York City, where the fees per small cell site can be more than $5,000.00 per installation. Such extortionate fees are effectively a tax on smartphone users and others who will utilize 5G for communications. According to the Order, it is estimated that capping these fees would stimulate over $2.4 billion in additional infrastructure buildout, with widespread benefits to consumers and the economy.

Meanwhile, Commissioner Rosenworcel cries “overreach!” “I do not believe the law permits Washington to run roughshod over state and local authority like this,” she said. Her federalist bent is welcome — or it would be, if it weren’t in such stark contrast to her anti-federalist preference for preempting states from establishing rules governing their own internal political institutions when it suits her preferred political objective. We are referring, of course, to Rosenworcel’s support for the previous administration’s FCC’s decision to preempt state laws prohibiting the extension of municipal governments’ broadband systems. The order doing so was plainly illegal from the moment it was passed, as every court that has looked at it has held. That she was ok with. But imposing reasonable federal limits on states’ and localities’ ability to extract political rents by abusing their franchising process is apparently beyond the pale.

Commissioner Rosenworcel is right that the FCC should try to promote market solutions like Brent’s OTARD proposal. And she is also correct in opposing dangerous and destructive tariffs that will increase the cost of telecommunications equipment. Unfortunately, she gets it dead wrong when she supports a stifling regulatory status quo that will surely make it unduly difficult and expensive to deploy next generation networks — not least for those most in need of them. As Chairman Pai noted in his Statement on the Order: “When you raise the cost of deploying wireless infrastructure, it is those who live in areas where the investment case is the most marginal — rural areas or lower-income urban areas — who are most at risk of losing out.”

Reconciling those two positions entails nothing more than pointing to the time-honored Washington tradition of Politics Over Policy. The point is not (entirely) to call out Commissioner Rosenworcel; she’s far from the only person in Washington to make this kind of crass political calculation. In fact, she’s far from the only FCC Commissioner ever to have done so.

One need look no further than the previous FCC Chairman, Tom Wheeler, to see the hypocritical politics of telecommunications policy in action. (And one need look no further than Tom Hazlett’s masterful book, The Political Spectrum: The Tumultuous Liberation of Wireless Technology, from Herbert Hoover to the Smartphone to find a catalogue of its long, sordid history).

Indeed, Larry Downes has characterized Wheeler’s reign at the FCC (following a lengthy recounting of all its misadventures) as having left the agency “more partisan than ever”:

The lesson of the spectrum auctions—one right, one wrong, one hanging in the balance—is the lesson writ large for Tom Wheeler’s tenure at the helm of the FCC. While repeating, with decreasing credibility, that his lodestone as Chairman was simply to encourage “competition, competition, completion” and let market forces do the agency’s work for it, the reality, as these examples demonstrate, has been something quite different.

The Wheeler FCC has instead been driven by a dangerous combination of traditional rent-seeking behavior by favored industry clients, potent pressure from radical advocacy groups and their friends in the White House, and a sincere if misguided desire by Wheeler to father the next generation of network technologies, which quickly mutated from sound policy to empty populism even as technology continued on its own unpredictable path.

* * *

And the Chairman’s increasingly autocratic management style has left the agency more political and more partisan than ever, quick to abandon policies based on sound legal, economic and engineering principles in favor of bait-and-switch proceedings almost certain to do more harm than good, if only unintentionally.

The great irony is that, while Commissioner Rosenworcel’s complaints are backed by a legitimate concern that the Commission has waited far too long to take action on spectrum issues, the criticism should properly fall not upon the current Chair, but — you guessed it — his predecessor, Chairman Wheeler (and his predecessor, Julius Genachowski). Of course, in true partisan fashion, Rosenworcel was fawning in her praise for her political ally’s spectrum agenda, lauding it on more than one occasion as going “to infinity and beyond!”

Meanwhile, Rosenworcel has taken virtually every opportunity to chide and castigate Chairman Pai’s efforts to get more spectrum into the marketplace, most often criticizing them as too little, too slow, and too late. Yet from any objective perspective, the current FCC has been addressing spectrum issues at a breakneck pace, as fast, or faster than any prior Commission. As with spectrum, there is an upper limit to the speed at which federal bureaucracy can work, and Chairman Pai has kept the Commission pushed right up against that limit.

It’s a shame Commissioner Rosenworcel prefers to blame Chairman Pai for the problems she had a hand in creating, and President Trump for problems she has no ability to correct. It’s even more a shame that, having an opportunity to address the problems she so often decries — by working to get more spectrum deployed and put into service more quickly and at lower cost to industry and consumers alike — she prefers to dutifully wear the hat of resistance, instead.

But that’s just politics, we suppose. And like any tariff, it makes us all poorer.

In Amazon, Broadband, China, Federal Communications Commission, Platforms, Telecommunications, Truth on the Market, Wireless , , , , , , , ,
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Why the Canadian Supreme Court’s Equustek decision is a good thing for freedom — even on the Internet

Neil Turkewitz —  8 July 2017

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.

In Amazon, China, Copyright, Google, Intellectual Property, International, Platforms, Twitter, United Kingdom , , , , , , , , , , , , ,
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Pushing Ad Networks Out of Business: Yershov v. Gannett and the War Against Online Platforms

Kristian Stout —  10 May 2016

The lifecycle of a law is a curious one; born to fanfare, a great solution to a great problem, but ultimately doomed to age badly as lawyers seek to shoehorn wholly inappropriate technologies and circumstances into its ambit. The latest chapter in the book of badly aging laws comes to us courtesy of yet another dysfunctional feature of our political system: the Supreme Court nomination and confirmation process.

In 1988, President Reagan nominated Judge Bork for a spot on the US Supreme Court. During the confirmation process following his nomination, a reporter was able to obtain a list of videos he and his family had rented from local video rental stores (You remember those, right?). In response to this invasion of privacy — by a reporter whose intention was to publicize and thereby (in some fashion) embarrass or “expose” Judge Bork — Congress enacted the Video Privacy Protection Act (“VPPA”).

In short, the VPPA makes it illegal for a “video tape service provider” to knowingly disclose to third parties any “personally identifiable information” in connection with the viewing habits of a “consumer” who uses its services. Left as written and confined to the scope originally intended for it, the Act seems more or less fine. However, over the last few years, plaintiffs have begun to use the Act as a weapon with which to attack common Internet business models in a manner wholly out of keeping with drafters’ intent.

And with a decision that promises to be a windfall for hungry plaintiff’s attorneys everywhere, the First Circuit recently allowed a plaintiff, Alexander Yershov, to make it past a 12(b)(6) motion on a claim that Gannett violated the VPPA with its  USA Today Android mobile app.

What’s in a name (or Android ID) ?

The app in question allowed Mr. Yershov to view videos without creating an account, providing his personal details, or otherwise subscribing (in the generally accepted sense of the term) to USA Today’s content. What Gannett did do, however, was to provide to Adobe Systems the Android ID and GPS location data associated with Mr. Yershov’s use of the app’s video content.

In interpreting the VPPA in a post-Blockbuster world, the First Circuit panel (which, apropos of nothing, included retired Justice Souter) had to wrestle with whether Mr. Yershov counts as a “subscriber,” and to what extent an Android ID and location information count as “personally identifying information” under the Act. Relying on the possibility that Adobe might be able to infer the identity of the plaintiff given its access to data from other web properties, and given the court’s rather gut-level instinct that an app user is a “subscriber,” the court allowed the plaintiff to survive the 12(b)(6) motion.

The PII point is the more arguable of the two, as the statutory language is somewhat vague. Under the Act, PIII “includes information which identifies a person as having requested or obtained specific video materials or services from a video tape service provider.” On this score the court decided that GPS data plus an Android ID (or each alone — it wasn’t completely clear) could constitute information protected under the Act (at least for purposes of a 12(b)(6) motion):

The statutory term “personally identifiable information” is awkward and unclear. The definition of that term… adds little clarity beyond training our focus on the question whether the information identifies the person who obtained the video…. Nevertheless, the language reasonably conveys the point that PII is not limited to information that explicitly names a person.

OK (maybe). But where the court goes off the rails is in its determination that an Android ID, GPS data, or a list of videos is, in itself, enough to identify anyone.

It might be reasonable to conclude that Adobe could use that information in combination with other information it collects from yet other third parties (fourth parties?) in order to build up a reliable, personally identifiable profile. But the statute’s language doesn’t hang on such a combination. Instead, the court’s reasoning finds potential liability by reading this exact sort of prohibition into the statute:

Adobe takes this and other information culled from a variety of sources to create user profiles comprised of a given user’s personal information, online behavioral data, and device identifiers… These digital dossiers provide Adobe and its clients with “an intimate look at the different types of materials consumed by the individual” … While there is certainly a point at which the linkage of information to identity becomes too uncertain, or too dependent on too much yet-to-be-done, or unforeseeable detective work, here the linkage, as plausibly alleged, is both firm and readily foreseeable to Gannett.

Despite its hedging about uncertain linkages, the court’s reasoning remains contingent on an awful lot of other moving parts — something not found in either the text of the law, nor the legislative history of the Act.

The information sharing identified by the court is in no way the sort of simple disclosure of PII that easily identifies a particular person in the way that, say, Blockbuster Video would have been able to do in 1988 with disclosure of its viewing lists.  Yet the court purports to find a basis for its holding in the abstract nature of the language in the VPPA:

Had Congress intended such a narrow and simple construction [as specifying a precise definition for PII], it would have had no reason to fashion the more abstract formulation contained in the statute.

Again… maybe. Maybe Congress meant to future-proof the provision, and didn’t want the statute construed as being confined to the simple disclosure of name, address, phone number, and so forth. I doubt, though, that it really meant to encompass the sharing of any information that might, at some point, by some unknown third parties be assembled into a profile that, just maybe if you squint at it hard enough, will identify a particular person and their viewing habits.

Passive Subscriptions?

What seems pretty clear, however, is that the court got it wrong when it declared that Mr. Yershov was a “subscriber” to USA Today by virtue of simply downloading an app from the Play Store.

The VPPA prohibits disclosure of a “consumer’s” PII — with “consumer” meaning “any renter, purchaser, or subscriber of goods or services from a video tape service provider.” In this case (as presumably will happen in most future VPPA cases involving free apps and websites), the plaintiff claims that he is a “subscriber” to a “video tape” service.

The court built its view of “subscriber” predominantly on two bases: (1) you don’t need to actually pay anything to count as a subscriber (with which I agree), and (2) that something about installing an app that can send you push notifications is different enough than frequenting a website, that a user, no matter how casual, becomes a “subscriber”:

When opened for the first time, the App presents a screen that seeks the user’s permission for it to “push” or display notifications on the device. After choosing “Yes” or “No,” the user is directed to the App’s main user interface.

The court characterized this connection between USA Today and Yershov as “seamless” — ostensibly because the app facilitates push notifications to the end user.

Thus, simply because it offers an app that can send push notifications to users, and because this app sometimes shows videos, a website or Internet service — in this case, an app portal for a newspaper company — becomes a “video tape service,” offering content to “subscribers.” And by sharing information in a manner that is nowhere mentioned in the statute and that on its own is not capable of actually identifying anyone, the company suddenly becomes subject to what will undoubtedly be an avalanche of lawsuits (at least in the first circuit).

Preposterous as this may seem on its face, it gets worse. Nothing in the court’s opinion is limited to “apps,” and the “logic” would seem to apply to the general web as well (whether the “seamless” experience is provided by push notifications or some other technology that facilitates tighter interaction with users). But, rest assured, the court believes that

[B]y installing the App on his phone, thereby establishing seamless access to an electronic version of USA Today, Yershov established a relationship with Gannett that is materially different from what would have been the case had USA Today simply remained one of millions of sites on the web that Yershov might have accessed through a web browser.

Thank goodness it’s “materially” different… although just going by the reasoning in this opinion, I don’t see how that can possibly be true.

What happens when web browsers can enable push notifications between users and servers? Well, I guess we’ll find out soon because major browsers now support this feature. Further, other technologies — like websockets — allow for continuous two-way communication between users and corporate sites. Does this change the calculus? Does it meet the court’s “test”? If so, the court’s exceedingly vague reasoning provides little guidance (and a whole lot of red meat for lawsuits).

To bolster its view that apps are qualitatively different than web sites with regard to their delivery to consumers, the court asks “[w]hy, after all, did Gannett develop and seek to induce downloading of the App?” I don’t know, because… cell phones?

And this bit of “reasoning” does nothing for the court’s opinion, in fact. Gannett undertook development of a web site in the first place because some cross-section of the public was interested in reading news online (and that was certainly the case for any electronic distribution pre-2007). No less, consumers have increasingly been moving toward using mobile devices for their online activities. Though it’s a debatable point, apps can often provide a better user experience than that provided by a mobile browser. Regardless, the line between “app” and “web site” is increasingly a blurry one, especially on mobile devices, and with the proliferation of HTML5 and frameworks like Google’s Progressive Web Apps, the line will only grow more indistinct. That Gannett was seeking to provide the public with an app has nothing to do with whether it intended to develop a more “intimate” relationship with mobile app users than it has with web users.

The 11th Circuit, at least, understands this. In Ellis v. Cartoon Network, it held that a mere user of an app — without more — could not count as a “subscriber” under the VPPA:

The dictionary definitions of the term “subscriber” we have quoted above have a common thread. And that common thread is that “subscription” involves some type of commitment, relationship, or association (financial or otherwise) between a person and an entity. As one district court succinctly put it: “Subscriptions involve some or [most] of the following [factors]: payment, registration, commitment, delivery, [expressed association,] and/or access to restricted content.”

The Eleventh Circuit’s point is crystal clear, and I’m not sure how the First Circuit failed to appreciate it (particularly since it was the district court below in the Yershov case that the Eleventh Circuit was citing). Instead, the court got tied up in asking whether or not a payment was required to constitute a “subscription.” But that’s wrong. What’s needed is some affirmative step – something more than just downloading an app, and certainly something more than merely accessing a web site.

Without that step — a “commitment, relationship, or association (financial or otherwise) between a person and an entity” — the development of technology that simply offers a different mode of interaction between users and content promises to transform the VPPA into a tremendously powerful weapon in the hands of eager attorneys, and a massive threat to the advertising-based business models that have enabled the growth of the web.

How could this possibly not apply to websites?

In fact, there is no way this opinion won’t be picked up by plaintiff’s attorneys in suits against web sites that allow ad networks to collect any information on their users. Web sites may not have access to exact GPS data (for now), but they do have access to fairly accurate location data, cookies, and a host of other data about their users. And with browser-based push notifications and other technologies being developed to create what the court calls a “seamless” experience for users, any user of a web site will count as a “subscriber” under the VPPA. The potential damage to the business models that have funded the growth of the Internet is hard to overstate.

There is hope, however.

Hulu faced a similar challenge over the last few years arising out of its collection of viewer data on its platform and the sharing of that data with third-party ad services in order to provide better targeted and, importantly, more user-relevant marketing. Last year it actually won a summary judgment motion on the basis that it had no way of knowing that Facebook (the third-party with which it was sharing data) would reassemble the data in order to identify particular users and their viewing habits. Nevertheless, Huu has previously lost motions on the subscriber and PII issues.

Hulu has, however, previously raised one issue in its filings on which the district court punted, but that could hold the key to putting these abusive litigations to bed.

The VPPA provides a very narrowly written exception to the prohibition on information sharing when such sharing is “incident to the ordinary course of business” of the “video tape service provider.” “Ordinary course of business” in this context means  “debt collection activities, order fulfillment, request processing, and the transfer of ownership.” In one of its motions, Hulu argued that

the section shows that Congress took into account that providers use third parties in their business operations and “‘allows disclosure to permit video tape service providers to use mailing houses, warehouses, computer services, and similar companies for marketing to their customers. These practices are called ‘order fulfillment’ and ‘request processing.’

The district court didn’t grant Hulu summary judgment on the issue, essentially passing on the question. But in 2014 the Seventh Circuit reviewed a very similar set of circumstances in Sterk v. Redbox and found that the exception applied. In that case Redbox had a business relationship with Stream, a third party that provided Redbox with automated customer service functions. The Seventh Circuit found that information sharing in such a relationship fell within Redbox’s “ordinary course of business”, and so Redbox was entitled to summary judgment on the VPPA claims against it.

This is essentially the same argument that Hulu was making. Third-party ad networks most certainly provide a service to corporations that serve content over the web. Hulu, Gannett and every other publisher on the web surely could provide their own ad platforms on their own properties. But by doing so they would lose the economic benefits that come from specialization and economies of scale. Thus, working with a third-party ad network pretty clearly replaces the “order fulfillment” and “request processing” functions of a content platform.

The Big Picture

And, stepping back for a moment, it’s important to take in the big picture. The point of the VPPA was to prevent public disclosures that would chill speech or embarrass individuals; the reporter in 1987 set out to expose or embarrass Judge Bork.  This is the situation the VPPA’s drafters had in mind when they wrote the Act. But the VPPA was most emphatically not designed to punish Internet business models — especially of a sort that was largely unknown in 1988 — that serve the interests of consumers.

The 1988 Senate report on the bill, for instance, notes that “[t]he bill permits the disclosure of personally identifiable information under appropriate and clearly defined circumstances. For example… companies may sell mailing lists that do not disclose the actual selections of their customers.”  Moreover, the “[Act] also allows disclosure to permit video tape service providers to use mailing houses, warehouses, computer services, and similar companies for marketing to their customers. These practices are called ‘order fulfillment’ and ‘request processing.’”

Congress plainly contemplated companies being able to monetize their data. And this just as plainly includes the common practice in automated tracking systems on the web today that use customers’ viewing habits to serve them with highly personalized web experiences.

Sites that serve targeted advertising aren’t in the business of embarrassing consumers or abusing their information by revealing it publicly. And, most important, nothing in the VPPA declares that information sharing is prohibited if third party partners could theoretically construct a profile of users. The technology to construct these profiles simply didn’t exist in 1988, and there is nothing in the Act or its legislative history to support the idea that the VPPA should be employed against the content platforms that outsource marketing to ad networks.

What would make sense is to actually try to fit modern practice in with the design and intent of the VPPA. If, for instance, third-party ad networks were using the profiles they created to extort, blackmail, embarrass, or otherwise coerce individuals, the practice certainly falls outside of course of business, and should be actionable.

But as it stands, much like the TCPA, the VPPA threatens to become a costly technological anachronism. Future courts should take the lead of the Eleventh and Seventh circuits, and make the law operate in the way it was actually intended. Gannett still has the opportunity to appeal for an en banc hearing, and after that for cert before the Supreme Court. But the circuit split this presents is the least of our worries. If this issue is not resolved in a way that permits platforms to continue to outsource their marketing efforts as they do today, the effects on innovation could be drastic.

Web platforms — which includes much more than just online newspapers — depend upon targeted ads to support their efforts. This applies to mobile apps as well. The “freemium” model has eclipsed the premium model for apps — a fact that expresses the preferences of both consumers at large as well as producers. Using the VPPA as a hammer to smash these business models will hurt everyone except, of course, for plaintiff’s attorneys.

In Amazon, Data Privacy & Security, Facebook, Google, Platforms, Truth on the Market , , , , , , ,
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FTC v Amazon: With every victory in court the FTC loses a little more

Geoffrey Manne —  27 April 2016

Yesterday a federal district court in Washington state granted the FTC’s motion for summary judgment against Amazon in FTC v. Amazon — the case alleging unfair trade practices in Amazon’s design of the in-app purchases interface for apps available in its mobile app store. The headlines score the decision as a loss for Amazon, and the FTC, of course, claims victory. But the court also granted Amazon’s motion for partial summary judgment on a significant aspect of the case, and the Commission’s win may be decidedly pyrrhic.

While the district court (very wrongly, in my view) essentially followed the FTC in deciding that a well-designed user experience doesn’t count as a consumer benefit for assessing substantial harm under the FTC Act, it rejected the Commission’s request for a permanent injunction against Amazon. It also called into question the FTC’s calculation of monetary damages. These last two may be huge. 

The FTC may have “won” the case, but it’s becoming increasingly apparent why it doesn’t want to take these cases to trial. First in Wyndham, and now in Amazon, courts have begun to chip away at the FTC’s expansive Section 5 discretion, even while handing the agency nominal victories.

The Good News

The FTC largely escapes judicial oversight in cases like these because its targets almost always settle (Amazon is a rare exception). These settlements — consent orders — typically impose detailed 20-year injunctions and give the FTC ongoing oversight of the companies’ conduct for the same period. The agency has wielded the threat of these consent orders as a powerful tool to micromanage tech companies, and it currently has at least one consent order in place with Twitter, Google, Apple, Facebook and several others.

As I wrote in a WSJ op-ed on these troubling consent orders:

The FTC prefers consent orders because they extend the commission’s authority with little judicial oversight, but they are too blunt an instrument for regulating a technology company. For the next 20 years, if the FTC decides that Google’s product design or billing practices don’t provide “express, informed consent,” the FTC could declare Google in violation of the new consent decree. The FTC could then impose huge penalties—tens or even hundreds of millions of dollars—without establishing that any consumer had actually been harmed.

Yesterday’s decision makes that outcome less likely. Companies will be much less willing to succumb to the FTC’s 20-year oversight demands if they know that courts may refuse the FTC’s injunction request and accept companies’ own, independent and market-driven efforts to address consumer concerns — without any special regulatory micromanagement.

In the same vein, while the court did find that Amazon was liable for repayment of unauthorized charges made without “express, informed authorization,” it also found the FTC’s monetary damages calculation questionable and asked for further briefing on the appropriate amount. If, as seems likely, it ultimately refuses to simply accept the FTC’s damages claims, that, too, will take some of the wind out of the FTC’s sails. Other companies have settled with the FTC and agreed to 20-year consent decrees in part, presumably, because of the threat of excessive damages if they litigate. That, too, is now less likely to happen.

Collectively, these holdings should help to force the FTC to better target its complaints to cases of still-ongoing and truly-harmful practices — the things the FTC Act was really meant to address, like actual fraud. Tech companies trying to navigate ever-changing competitive waters by carefully constructing their user interfaces and payment mechanisms (among other things) shouldn’t be treated the same way as fraudulent phishing scams.

The Bad News

The court’s other key holding is problematic, however. In essence, the court, like the FTC, seems to believe that regulators are better than companies’ product managers, designers and engineers at designing app-store user interfaces:

[A] clear and conspicuous disclaimer regarding in-app purchases and request for authorization on the front-end of a customer’s process could actually prove to… be more seamless than the somewhat unpredictable password prompt formulas rolled out by Amazon.

Never mind that Amazon has undoubtedly spent tremendous resources researching and designing the user experience in its app store. And never mind that — as Amazon is certainly aware — a consumer’s experience of a product is make-or-break in the cut-throat world of online commerce, advertising and search (just ask Jet).

Instead, for the court (and the FTC), the imagined mechanism of “affirmatively seeking a customer’s authorized consent to a charge” is all benefit and no cost. Whatever design decisions may have informed the way Amazon decided to seek consent are either irrelevant, or else the user-experience benefits they confer are negligible.

As I’ve written previously:

Amazon has built its entire business around the “1-click” concept — which consumers love — and implemented a host of notification and security processes hewing as much as possible to that design choice, but nevertheless taking account of the sorts of issues raised by in-app purchases. Moreover — and perhaps most significantly — it has implemented an innovative and comprehensive parental control regime (including the ability to turn off all in-app purchases) — Kindle Free Time — that arguably goes well beyond anything the FTC required in its Apple consent order.

Amazon is not abdicating its obligation to act fairly under the FTC Act and to ensure that users are protected from unauthorized charges. It’s just doing so in ways that also take account of the costs such protections may impose — particularly, in this case, on the majority of Amazon customers who didn’t and wouldn’t suffer such unauthorized charges.

Amazon began offering Kindle Free Time in 2012 as an innovative solution to a problem — children’s access to apps and in-app purchases — that affects only a small subset of Amazon’s customers. To dismiss that effort without considering that Amazon might have made a perfectly reasonable judgment that balanced consumer protection and product design disregards the cost-benefit balancing required by Section 5 of the FTC Act.

Moreover, the FTC Act imposes liability for harm only when they are not “reasonably avoidable.” Kindle Free Time is an outstanding example of an innovative mechanism that allows consumers at risk of unauthorized purchases by children to “reasonably avoid” harm. The court’s and the FTC’s disregard for it is inconsistent with the statute.

Conclusion

The court’s willingness to reinforce the FTC’s blackboard design “expertise” (such as it is) to second guess user-interface and other design decisions made by firms competing in real markets is unfortunate. But there’s a significant silver lining. By reining in the FTC’s discretion to go after these companies as if they were common fraudsters, the court has given consumers an important victory. After all, it is consumers who otherwise bear the costs (both directly and as a result of reduced risk-taking and innovation) of the FTC’s largely unchecked ability to extract excessive concessions from its enforcement targets.

In Amazon, Apple, Facebook, Federal Trade Commission, Google, Law & Economics, Platforms, Regulation, Section 5, Twitter , , , , , , , , , , , , ,
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Reed on the Apple e-books case: “We can remember it for you wholesale” – why the model matters in Apple e-books

totmauthor —  16 February 2016

By Morgan Reed

In Philip K. Dick’s famous short story that inspired the Total Recall movies, a company called REKAL could implant “extra-factual memories” into the minds of anyone. That technology may be fictional, but the Apple eBooks case suggests that the ability to insert extra-factual memories into the courts already exists.

The Department of Justice, the Second Circuit majority, and even the Solicitor General’s most recent filing opposing cert. all assert that the large publishing houses invented a new “agency” business model as a way to provide leverage to raise prices, and then pushed it on Apple.

The basis of the government’s claim is that Apple had “just two months to develop a business model” once Steve Jobs had approved the “iBookstore” ebook marketplace. The government implies that Apple was a company so obviously old, inept, and out-of-ideas that it had to rely on the big publishers for an innovative business model to help it enter the market. And the court bought it “wholesale,” as it were. (Describing Apple’s “a-ha” moment when it decided to try the agency model, the court notes, “[n]otably, the possibility of an agency arrangement was first mentioned by Hachette and HarperCollins as a way ‘to fix Amazon pricing.'”)

The claim has no basis in reality, of course. Apple had embraced the agency model long before, as it sought to disrupt the way software was distributed. In just the year prior, Apple had successfully launched the app store, a ground-breaking example of the agency model that started with only 500 apps but had grown to more than 100,000 in 12 months. This was an explosion of competition — remember, nearly all of those apps represented a new publisher: 100,000 new potential competitors.

So why would the government create such an absurd fiction?

Because without that fiction, Apple moves from “conspirator” to “competitor.” Instead of anticompetitive scourge, it becomes a disruptor, bringing new competition to an existing market with a single dominant player (Amazon Kindle), and shattering the control held by the existing publishing industry.

More than a decade before the App Store, software developers had observed that the wholesale model for distribution created tremendous barriers for entry, increased expense, and incredible delays in getting to market. Developers were beholden to a tiny number of physical stores that sold shelf space and required kickbacks (known as spiffs). Today, there are legions of developers producing App content, and developers have earned more than $10 billion in sales through Apple’s App Store. Anyone with an App idea or, moreover, an idea for a book, can take it straight to consumers rather than having to convince a publisher, wholesaler or retailer that it is worth purchasing and marketing.

This disintermediation is of critical benefit to consumers — and yet the Second Circuit missed it. The court chose instead to focus on the claim that if the horizontal competitors conspired, then Apple, which had approached the publishers to ensure initial content would exist at time of launch, was complicit. Somehow Apple could be a horizontal competitor even through it wasn’t part of the publishing industry!

There was another significant consumer and competitive benefit from Apple’s entry into the market and the shift to the agency model. Prior to the Apple iPad, truly interactive books were mostly science fiction, and the few pilot projects that existed had little consumer traction. Amazon, which held 90% of the electronic books market, chose to focus on creating technology that mirrored the characteristics of reading on paper: a black and white screen and the barest of annotation capabilities.

When the iPad was released, Apple sent up a signal flag that interactivity would be a focal point of the technology by rolling out tools that would allow developers to access the iPad’s accelerometer and touch sensitive screen to create an immersive experience. The result? Products that help children with learning disabilities, and competitors fighting back with improved products.

Finally, Apple’s impact on consumers and competition was profound. Amazon switched, as well, and the nascent world of self publishing exploded. Books like Hugh Howey’s Wool series (soon to be a major motion picture) were released as smaller chunks for only 99 cents. And “the Martian,” which is up for several Academy Awards found a home and an audience long before any major publisher came calling.

We all need to avoid the trip to REKAL and remember what life was like before the advent of the agency model. Because if the Second Circuit decision is allowed to stand, the implication for any outside competitor looking to disrupt a market is as grim and barren as the surface of Mars.

In Amazon, Antitrust & Competition, Apple, Monopolization, Platforms, Resale Price Maintenance, Supreme Court, Symposium on the Apple E-Books Antitrust Case: Implications for Antitrust and for the Economy, Telecommunications, Vertical Restraints, Wireless , , , , , , , , , , , , , , , ,
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Manne on the Apple e-books case: The Second Circuit’s decision has no support in the law and/or economics

Geoffrey Manne —  15 February 2016

As ICLE argued in its amicus brief, the Second Circuit’s ruling in United States v. Apple Inc. is in direct conflict with the Supreme Court’s 2007 Leegin decision, and creates a circuit split with the Third Circuit based on that court’s Toledo Mack ruling. Moreover, the negative consequences of the court’s ruling will be particularly acute for modern, high-technology sectors of the economy, where entrepreneurs planning to deploy new business models will now face exactly the sort of artificial deterrents that the Court condemned in Trinko:

Mistaken inferences and the resulting false condemnations are especially costly, because they chill the very conduct the antitrust laws are designed to protect.

Absent review by the Supreme Court to correct the Second Circuit’s error, the result will be less-vigorous competition and a reduction in consumer welfare. The Court should grant certiorari.

The Second Circuit committed a number of important errors in its ruling.

First, as the Supreme Court held in Leegin, condemnation under the per se rule is appropriate

only for conduct that would always or almost always tend to restrict competition… [and] only after courts have had considerable experience with the type of restraint at issue.

Neither is true in this case. The use of MFNs in Apple’s contracts with the publishers and its adoption of the so-called “agency model” for e-book pricing have never been reviewed by the courts in a setting like this one, let alone found to “always or almost always tend to restrict competition.” There is no support in the case law or economic literature for the proposition that agency models or MFNs used to facilitate entry by new competitors in platform markets like this one are anticompetitive.

Second, the court of appeals emphasized that in some cases e-book prices increased after Apple’s entry, and it viewed that fact as strong support for application of the per se rule. But the Court in Leegin made clear that the per se rule is inappropriate where, as here, “prices can be increased in the course of promoting procompetitive effects.”  

What the Second Circuit missed is that competition occurs on many planes other than price; higher prices do not necessarily suggest decreased competition or anticompetitive effects. As Josh Wright points out:

[T]the multi-dimensional nature of competition implies that antitrust analysis seeking to maximize consumer or total welfare must inevitably calculate welfare tradeoffs when innovation and price effects run in opposite directions.

Higher prices may accompany welfare-enhancing “competition on the merits,” resulting in greater investment in product quality, reputation, innovation, or distribution mechanisms.

While the court acknowledged that “[n]o court can presume to know the proper price of an ebook,” its analysis nevertheless rested on the presumption that Amazon’s prices before Apple’s entry were competitive. The record, however, offered no support for that presumption, and thus no support for the inference that post-entry price increases were anticompetitive.

In fact, as Alan Meese has pointed out, a restraint might increase prices precisely because it overcomes a market failure:

[P]roof that a restraint alters price or output when compared to the status quo ante is at least equally consistent with an alternative explanation, namely, that the agreement under scrutiny corrects a market failure and does not involve the exercise or creation of market power. Because such failures can result in prices that are below the optimum, or output that is above it, contracts that correct or attenuate market failure will often increase prices or reduce output when compared to the status quo ante. As a result, proof that such a restraint alters price or other terms of trade is at least equally consistent with a procompetitive explanation, and thus cannot give rise to a prima facie case under settled antitrust doctrine.

Before Apple’s entry, Amazon controlled 90% of the e-books market, and the publishers had for years been unable to muster sufficient bargaining power to renegotiate the terms of their contracts with Amazon. At the same time, Amazon’s pricing strategies as a nascent platform developer in a burgeoning market (that it was, in practical effect, trying to create) likely did not always produce prices that would be optimal under evolving market conditions as the market matured. The fact that prices may have increased following the alleged anticompetitive conduct cannot support an inference that the conduct was anticompetitive.

Third, the Second Circuit also made a mistake in dismissing Apple’s defenses. The court asserted that

this defense — that higher prices enable more competitors to enter a market — is no justification for a horizontal price‐fixing conspiracy.

But the court is incorrect. As Bill Kolasky points out in his post, it is well-accepted that otherwise-illegal agreements that are ancillary to a procompetitive transaction should be evaluated under the rule of reason.

It was not that Apple couldn’t enter unless Amazon’s prices (and its own) were increased. Rather, the contention made by Apple was that it could not enter unless it was able to attract a critical mass of publishers to its platform – a task which required some sharing of information among the publishers – and unless it was able to ensure that Amazon would not artificially lower its prices to such an extent that it would prevent Apple from attracting a critical mass of readers to its platform. The MFN and the agency model were thus ancillary restraints that facilitated the transactions between Apple and the publishers and between Apple and iPad purchasers. In this regard they are appropriately judged under the rule of reason and, under the rule of reason, offer a valid procompetitive justification for the restraints.

And it was the fact of Apple’s entry, not the use of vertical restraints in its contracts, that enabled the publishers to wield the bargaining power sufficient to move Amazon to the agency model. The court itself noted that the introduction of the iPad and iBookstore “gave publishers more leverage to negotiate for alternative sales models or different pricing.” And as Ben Klein noted at trial,

Apple’s entry probably gave the publishers an increased ability to threaten [Amazon sufficiently that it accepted the agency model]…. The MFN [made] a trivial change in the publishers’ incentives…. The big change that occurs is the change on the other side of the bargaining situation after Apple comes in where Amazon now cannot just tell them no.

Fourth, the purpose of applying the per se rule is to root out activities that always or almost always harm competition. Although it’s possible that a horizontal agreement that facilitates entry and increases competition could be subject to the per se rule, in this case its application was inappropriate. The novelty of Apple’s arrangement with the publishers, coupled with the weakness of proof of any sort of actual price fixing fails to meet even a minimal threshold that would require application of the per se rule.

Not all horizontal arrangements are per se illegal. If an arrangement is relatively novel, facilitates entry, and is patently different from naked price fixing, it should be reviewed under the rule of reason. See BMI. All of those conditions are met here.

The conduct of the publishers – distinct from their agreements with Apple – to find some manner of changing their contracts with Amazon is not itself price fixing, either. The prices themselves would be set only subsequent to whatever new contracts were adopted. At worst, the conduct of the publishers in working toward new contracts with Amazon can be characterized as a facilitating practice.

But even then, the precedent of the Court counsels against applying the per se rule to facilitating practices such as the mere dissemination of price information or, as in this case, information regarding the parties’ preferred, bilateral, contractual relationships. As the Second Circuit itself once held, following the Supreme Court,  

[the] exchange of information is not illegal per se, but can be found unlawful under a rule of reason analysis.

In other words, even the behavior of the publishers should be analyzed under a rule of reason – and Apple’s conduct in facilitating that behavior cannot be imbued with complicity in a price-fixing scheme that may not have existed at all.

Fifth, in order for conduct to “eliminate price competition,” there must be price competition to begin with. But as the district court itself noted, the publishers do not compete on price. This point is oft-overlooked in discussions of the case. It is perhaps possible to say that the contract terms at issue and the publishers’ pressure on Amazon affected price competition between Apple and Amazon – but even then it cannot be said to have reduced competition, because, absent Apple’s entry, there was no competition at all between Apple and Amazon.

It’s true that, if all Apple’s entry did was to transfer identical e-book sales from Amazon to Apple, at higher prices and therefore lower output, it might be difficult to argue that Apple’s entry was procompetitive. But the myopic focus on e-book titles without consideration of product differentiation is mistaken, as well.

The relevant competition here is between Apple and Amazon at the platform level. As explained above, it is misleading to look solely at prices in evaluating the market’s competitiveness. Provided that switching costs are low enough and information about the platforms is available to consumers, consumer welfare may have been enhanced by competition between the platforms on a range of non-price dimensions, including, for example: the Apple iBookstore’s distinctive design, Apple’s proprietary file format, features on Apple’s iPad that were unavailable on Kindle Readers, Apple’s use of a range of marketing incentives unavailable to Amazon, and Apple’s algorithmic matching between its data and consumers’ e-book purchases.

While it’s difficult to disentangle Apple’s entry from other determinants of consumers’ demand for e-books, and even harder to establish with certainty the “but-for” world, it is nonetheless telling that the e-book market has expanded significantly since Apple’s entry, and that purchases of both iPads and Kindles have increased, as well.

There is, in other words, no clear evidence that consumers viewed the two products as perfect substitutes, and thus there is no evidence that Apple’s entry merely caused a non-welfare-enhancing substitution from Amazon to Apple. At minimum, there is no basis for treating the contract terms that facilitated Apple’s entry under a per se standard.

***

The point, in sum, is that there is in fact substantial evidence that Apple’ entry was pro-competitive, that there was no price-fixing scheme of which Apple was a part, and absolutely no evidence that the vertical restraints at issue in the case were the sort that should presumptively give rise to liability. Not only was application of the per se rule inappropriate, but, to answer Richard Epstein, there is strong evidence that Apple should win under a rule of reason analysis, as well.

In Amazon, Antitrust & Competition, Apple, Economic Theory, Intellectual Property, International Center for Law & Economics, Law & Economics, Monopolization, Patent, Platforms, Supreme Court, Symposium on the Apple E-Books Antitrust Case: Implications for Antitrust and for the Economy, Vertical Restraints , , , , , , , , , , , , , , , , , , , , , ,
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The Second Circuit Misapplies the Per Se Rule in U.S. v. Apple

Alden Abbott —  7 July 2015

In its June 30 decision in United States v. Apple Inc., a three-judge Second Circuit panel departed from sound antitrust reasoning in holding that Apple’s e-book distribution agreement with various publishers was illegal per se. Judge Dennis Jacobs’ thoughtful dissent, which substantially informs the following discussion of this case, is worth a close read.

In 2009, Apple sought to enter the retail market for e-books, as it prepared to launch its first iPad tablet. Apple, however, confronted an e-book monopolist, Amazon (possessor of a 90 percent e-book market share), that was effectively excluding new entrants by offering bestsellers at a loss through its popular Kindle device ($9.99, a price below what Amazon was paying publishers for the e-book book rights). In order to effectively enter the market without incurring a loss itself (by meeting Amazon’s price) or impairing its brand (by charging more than Amazon), Apple approached publishers that dealt with Amazon and offered itself as a competing e-book buyer, subject to the publishers agreeing to a new distribution model that would lower barriers to entry into retail e-book sales. The new publishing model was implemented by three sets of contract terms Apple asked the publishers to accept – agency pricing, tiered price caps, and a most-favored-nation (MFN) clause. (I refer the reader to the full panel majority opinion for a detailed discussion of these clauses.) None of those terms, standing alone, is illegal. Although the publishers were unhappy about Amazon’s below-cost pricing for e-books, no one publisher alone could counter Amazon. Five of the six largest U.S. publishers (Hachette, HarperCollins, Macmillan, Penguin, and Simon & Schuster) agreed to Apple’s terms and jointly convinced Amazon to adopt agency pricing. Apple also encouraged other publishers to implement agency pricing in their contracts with other retailers. The barrier to entry thus removed, Apple entered the retail market as a formidable competitor. Amazon’s retail e-book market share fell, and today stands at 60 percent.

The U.S. Department of Justice (DOJ) and 31 states sued Apple and the five publishers for conspiring in unreasonable restraint of trade under Sherman Act § 1. The publishers settled (signing consent decrees which prohibited them for a period from restricting e-book retailers’ ability to set prices), but Apple proceeded to a bench trial. A federal district court held that Apple’s conduct as a vertical enabler of a horizontal price conspiracy among the publishers was a per se violation of § 1, and that (in any event) Apple’s conduct would also violate § 1 under the antitrust rule of reason.   A majority of the Second Circuit panel affirmed on the ground of per se liability, without having to reach the rule of reason question.

Judge Jacobs’ dissent argued that Apple’s conduct was not per se illegal and also passed muster under the rule of reason. He pointed to three major errors in the majority’s opinion. First, the holding that the vertical enabler of a horizontal price fixing is in per se violation of the antitrust laws conflicts with the Supreme Court’s teaching (in overturning the per se prohibition on resale price maintenance) that a vertical agreement designed to facilitate a horizontal cartel “would need to be held unlawful under the rule of reason.” Leegin Creative Leather Prods, Inc. v. PSKS, Inc. 551 U.S. 877, 893 (2007) (emphasis added).   Second, the district court failed to recognize that Apple’s role as a vertical player differentiated it from the publishers – it should have considered Apple as a competitor on the distinct horizontal plane of retailers, where Apple competed with Amazon (and with smaller player such as Barnes & Noble). Third, assessed under the rule of reason, Apple’s conduct was “overwhelmingly” procompetitive; Apple was a major potential competitor in a market dominated by a 90 percent monopoly, and was “justifiably unwilling” to enter a market on terms that would assure a loss on sales or exact a toll on its reputation.

Judge Jacobs’ analysis is on point. The Supreme Court’s wise reluctance to condemn any purely vertical contractual restraint under the per se rule reflects a sound understanding that vertical restraints have almost always been found to be procompetitive or competitively neutral. Indeed, vertical agreements that are designed to facilitate entry into an important market dominated by one firm, such as the ones at issue in the Apple case, are especially bad candidates for summary condemnation. Thus, the majority’s decision to apply the per se rule to Apple’s contracts appears particularly out of touch with both scholarship and marketplace realities.

More generally, as Professor Herbert Hovenkamp (the author of the leading antitrust treatise) and other scholars have emphasized, well-grounded antitrust analysis involves a certain amount of preliminary evaluation of a restraint seen in its relevant factual context, before a “per se” or “rule of reason” label is applied. (In the case of truly “naked” secret hard core cartels, which DOJ prosecutes under criminal law, the per se label may be applied immediately.) The Apple panel majority panel botched this analytic step, in failing to even consider that Apple’s restraints could enhance retail competition with Amazon.

The panel majority also appeared overly fixated on the fact that some near-term e-book retail prices rose above Amazon’s previous below cost levels in the wake of Apple’s contracts, without noting the longer term positive implications for the competitive process of new e-book entry. Below-cost prices are not a feature of durable efficient competition, and in this case may well have been a temporary measure aimed at discouraging entry. In any event, what counts in measuring consumer welfare is not short term price, but whether expanded output is being promoted by a business arrangement – a key factor that the majority notably failed to address. (It appears highly probable that the fall in Amazon’s e-book retail market share, and the invigoration of e-book competition, have generated output and welfare levels higher than those that would have prevailed had Amazon maintained its monopoly. This is bolstered by Apple’s showing, which the majority does not deny, that in the two years following the “conspiracy” among Apple and the publishers, prices across the e-book market as a whole fell slightly and total output increased.)

Finally, Judge Jacobs’ dissent provides strong arguments in favor of upholding Apple’s conduct under the rule of reason. As the dissent stresses, removal of barriers to entry that shield a monopolist, as in this case, is in line with the procompetitive goals of antitrust law. Another procompetitive effect is the encouragement of innovation (manifested by the enablement of e-book reading with the cutting-edge functions of the iPad), a hallmark and benefit of competition. Another benefit was that the elimination of below-cost pricing helped raise authors’ royalties. Furthermore, in the words of the dissent, any welfare reductions due to Apple’s vertical restrictions are “no more than a slight offset to the competitive benefits that now pervade the relevant market.” (Admittedly that comment is a speculative observation, but in my view very likely a well-founded one.) Finally, as the dissent points out, the district court’s findings demonstrate that Apple could not have entered and competed effectively using other strategies, such as wholesale contracts involving below-cost pricing (like Amazon’s) or higher prices. Summing things up, the dissent explains that “Apple took steps to compete with a monopolist and open the market to more entrants, generating only minor competitive restraints in the process. Its conduct was eminently reasonable; no one has suggested a viable alternative.” In closing, even if one believes a more fulsome application of the rule of reason is called for before reaching the dissent’s conclusion, the dissent does a good job in highlighting the key considerations at play here – considerations that the majority utterly failed to address.

In sum, the Second Circuit panel majority wore jurisprudential blinders in its Apple decision. Like the mesmerized audience at a magic show, it focused in blinkered fashion on a magician’s sleight of hand (the one-dimensional characterization of certain uniform contractual terms), while not paying attention to what was really going on (the impressive welfare-enhancing invigoration of competition in e-book retailing). In other words, the majority decision showed a naïve preference for quick and superficial characterizations of conduct at the expense of a nuanced assessment of the broader competitive context. Perhaps the Second Circuit en banc will have the opportunity to correct the panel’s erroneous understanding of per se and rule of reason analysis. Even better, the Supreme Court may wish to step in to ensure that its thoughtful development of antitrust doctrine in recent years – focused on actual effects and economic efficiency, not on superficial condemnatory labels that ignore marketplace benefits – not be undermined.

In Amazon, Antitrust & Competition, Apple, Barriers to Entry, Justice Department, Law & Economics, Monopolization, Platforms, Resale Price Maintenance, Truth on the Market, Vertical Restraints , , , , , , , , , , , , , , , , ,
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