Digital Antitrust (Law 276.45)

Stephen M. Maurer andSuzanne Scotchmer

 

Spring 2014, Thursday 3:35-6:15, Room 107 Law School.

 

Office Hours: Maurer by appointment, Scotchmer Tuesday 10-12, Room 687 Simon.

 

Description: The course will prepare students for for an antitrust practice in the digital economy, especially as it relates to intellectual property. We focus on how the digital era has changed competition, by introducing and elevating forms of competition that had little importance in the “old” economy. Topics will include search advertising, platform competition, proprietary interfaces, network effects, and commercial open source.

 

Requirement: Students are required to attend every class, participate in discussion, and write three assignments related to material taught in lectures.

 

Prerequisites: None. We will teach the economics needed to make arguments in this territory. In fact, this is a good vehicle to learn some economics that will make you a better antitrust and intellectual property lawyer. The course is self-contained, but it is useful to have taken the basic antitrust course.

 

 

 

OVERVIEW AND Basics

1. Economic underpinnings of the Digital Economy

Natural monopoly, Network effects, Schumpeterian Competition, (Public Goods), Innovation and IP, Two-Sided Markets.

Required: U.S. v. Microsoft 253 F3d 34, pp. 47-58 (DC Cir. 2001).

Chapter 7 of Information Rules Shapiro and Varian.

Recommended: Suzanne Scotchmer, Innovation and Incentives (2006) Chapter 10. (Students who review this text should focus on its examples rather than mathematical details).

Competition in Network Markets

2. Section 2 Network effects and competition for the market

 

Balancing Schumpeterian competition against network effects.

Required: Michael Katz and Carl Schapiro, “Systems Competition and Network Effects,” J. Econ. Perspectives 8(2): 93-115 (1994), available on bSpace.

Required: U.S. v. Microsoft 253 F3d 34, pp. 58-84 (DC Cir 2001).

Recommended: Ahlborn, C. and D. Evans, The Microsoft Judgment and its Implications, Antitrust L. J. 75.

3. Competition for the Market: Which tactics should be tolerated?

Do tying claims make sense in the digital economy? Is there an antitrust wrong of “predatory pricing” when additional copies cost zero?

U.S. v. Microsoft, 253 F3d 34 at pp. 84-97 (DC Cir 2001).

Recommended: Mark A. Lemley and David McGowan, “Legal Implications of Network Economic Effects,” 86 Cal. L. Rev. 479 (1998).

platform competition

4. Platforms and Two-Sided Markets.

Two-sided markets charge fees to match buyers with sellers. For example, Google uses its search services to match advertisers with buyers. Operators frequently subsidize one side of the market and tax the other. Should the Sherman Act tolerate this?

Recommended: Federal Trade Commission, Statement of the Commission Concerning Google/AdMob (May 21, 2010).

 

[To add: a two-sided market case.

Commentary by litigators: Lloyd Constantine, Jeffrey I. Shinder, and Kern E. Coughlin, In re Visa Check/Mastermoney Antitrust Litigation: A Study of Market Failure in a Two-Sided Market, Columbia Bus. L. Rev. 599-614 (2005).

5. Section 1 and platform competition

 

Platforms and content feed each other. How does this affect competition in each market?

Required: U.S. v. Apple Inc. 2013 U.S. Dist. LEXIS 96424 (S.D.N.Y. 2013).

 

Recommended: Gordon Crovitz, “A Judge Convicts Apple of Competition.” Wall Street Journal July 21, 2013.

ESSENTIAL FACILITIES IN THE DIGITAL ECONOMY

6. Essential Facilities. Telecomm cases and leveraging. The essential facilities doctrine has been used to prevent the monopolist owner of an essential facility from leveraging into an adjacent market.

Overview: S.Maurer and S. Scotchmer, Essential Facilities: The Lost Message of Terminal Railroad. 2013, Sections I-III

Required: Verizon Communications, Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 US 398 (2004).

Intergraph Corp. v. Intel Corp., 195 F.3d 1346; Fed. Cir. (1999).

Recommended: MCI Comms. Corp. v. American Tel. & Tel. Co., 708 F.2d. 1081 (1982) (This is a very long but thoughtful case. It provides the clearest modern statement of the doctrine and its elements).

7. Essential Facilities, Synergies.  The doctrine was created so that firms could harvest the synergies of sharing facilities. The legal trick is to do this while preserving competition. Digital markets make the tension between sharing and competition worse. Is this an opportunity to rationalize the essential facilities doctrine?

Required: Overview: S Maurer and S Scotchmer, Essential Facilities: The Lost Message of Terminal Railroad. 2013, read the rest of the paper.

 Microsoft v. Commission 2007 E.C.R. II-3601 (Ct. First Instance) (CFI Decision 2007).

Recommended: Pacific Bell Tel. Co. v. Linkline Comms., Inc., 129 S.Ct. 1109 (2009) (extending Trinko to restrict “price squeeze” absent duty to deal).

8. Synthesis: the Google Wars. Network effects, synergies and natural monopoly come together in data.

Required: Statement of the Federal Trade Commission Regarding Google’s Search Practices, In the Matter of Google Inc. FTC File Number 111-0163 (Jan. 3 2013) (reviewing and resolving pending FTC inquiries against Google), available on bSpace.

FairSearch.Org, “Google’s Transformation from Gateway to Gatekeeper: How Google’s Exclusionary and Anticompetitive Conduct Restricts Innovation and Deceives Consumers,” available on bSpace. (A Microsoft-funded group alleges anticompetitive acts by Google.)

Google, “Commitments in Case COMP/C-3/39.740 - Foundem and others.” (Google’s attempt to resolve action in European Commission).

Recommended: Danny Sullivan, Googleopoly: The Definitive Guide to Antitrust Investigations Against Google (site documenting the history of antitrust claims against Google through 2011).

9. Remedies. Break-ups and the problem of complements. Structured sharing (essential facilities cases).

Required: Howard A. Shelanski and J. Gregory Sidak, “Antitrust Divestiture in Network Industries,” 68 U. Chi. L. Rev. 1 (2001).

Recommended: Nicholas Economides and Ioannis Lianos, “A Critical Appraisal of Remedies in the E.U. Microsoft Cases,” Colum. Bus. L. Rev. 346 (2010).

Intellectual Property

10. Complex products (IP)

Licenses, patent pools, and grantbacks. When do cross-licenses facilitate monopoly pricing by the participants? Should patent licenses force licenses to assign any improvements back to the original patent owner?

Transparent-Wrap Machine Corp. v. Stokes & Smith Co., 329 U.S. 637 (1947).

 

United States v. Line Material Co., 333 U.S. 287 (1948).

11. Complex products (IP)

Standards and FRAND. Modern electronic devices include hundreds of thousands of patents. Firms address this by promising to license each other on FRAND terms. How is this enforced, and does it ever violate the Sherman  Act?

Rambus v. Federal Trade Comm’n, 522 F.3d 456 (DC Cir 2008).

Broadcom v. Qualcomm, 501 F.3d 297 (3rd Cir 2007).

Apple, Inc. v. Motorola, Inc. (Posner, N. D. Ill. 2012).

Recommended: Microsoft v. Motorola (2013) It might be easier to read the commentary on Groklaw and Essential Patent Blog

Recommended: Herbert Hovencamp, Patent Deception in Standard Setting: The Case for Antitrust Policy. SSRN 1138002 (good review of Rambus and Broadcom cases).

Keith Maskus and Stephen A Merrill, Patent Challenges for Standard-Setting in the Global Economy: Lessons from Information and Communication Technology (National Academy of Sciences 2013).

Anne Layne-Farrar, A. Jorge Padilla, and Richard Schmalensee Pricing Patents for Licensing in Standard Setting Organizations: Making Sense of FRAND Commitments,” Antitrust L.J. (2007). (discusses econometric methods that courts can potentially use to set FRAND prices)

12. Patents: trolls, licensing and grantbacks. Should Patent Assertion Entities (“trolls”) be treated differently than patent owners who supply the market? 

Joe Mullin, “Finally, a bill to end patent trolling: Bipartisan bill has most of what reformers want—and a real chance of passing,” Ars Tecnica (Oct 23 2013).

Google, “Patent Licensing to Encourage Innovation,” available at http://www.google.com/patents/licensing/lot/ (using private agreements to block trolls).

Recommended: Michael B.G. Froman, Letter to US ITC Commissioner (Aug. 3 2013). (Obama administration letter vetoing ITC injunction against importation of Apple tablets that infringe Samsung patents)

13. Open Source. Businesses like IBM have spent billions of dollars subsidizing open source software and made it available to all users at zero cost. Why do they do this? Can agreements to suppress the price of software violate the Sherman Act?

Required: Wallace v. International Bus. Mach. Corp., (7th Cir .2006) 467 F.3d 1104

S.M. Maurer, The Penguin and the Cartel: Rethinking Antitrust and Innovation Policy for the Age of Commercial Open Source, SSRN No. 1652292

Recommended: Schwarz and Takhteyev, Half a Century of Public Software Institutions: Open Source as a Solution to the Holdup Problem.

CONCLUSIONS

14. Conclusion: What’s New Here?

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