The Future of Antitrust: Comments on the HJC Report

Below, we have provided the full transcript of the panel discussion from our event on October 9, 2020, The Future of Antitrust: Comments on the HJC Report.

Marianela LÓPEZ-GALDOS:

Good morning, everyone. My name is Marianela Lopez-Galdos, and I’m the Global Competition and Regulatory Counsel to CCIA, the Computer and Communications Industry Association. In a few moments, we will be starting with the second part of this morning’s program. Where we will be discussing the House Judiciary Antitrust Subcommittee Report as released by Democrats. As you know, it was released this Tuesday. So, it’s a very timely discussion that we’re going to have.

But before we get started, let me thank Tim Muris and Maureen Ohlhausen for what I think it’s been a wonderful fireside chat. In my opinion, it’s always a learning experience to listen to these two experts. And it’s very worth listening to them.

So, for today’s program, we have three wonderful speakers. Tad Lipsky, Danny Sokol, and then Andy Gavil. And the way we’re going to structure our conversation is that first I will give each of the speakers some time to give us their broad views over the report. And then we’ll engage in a conversation where I’ll be asking some questions. And at this point, I want to thank the audience because we received a lot of questions from you, so I have tried to organize those so we can cover as many as the questions that we have been receiving.

So, without further ado, let me introduce you to our speakers. I’ll share with you their bios and then we can get started. So, Andy Gavil is a Professor at Law at the Howard University School of Law and a Senior of Counsel to Crowell & Moring in Washington DC. He has co-authored what I think is the leading antitrust casebook, and has extensively written on the Microsoft antitrust cases. And as he is telling me, he has a forthcoming article in the Penn Law Review with Professor Steven Salop, where he’s reexamining and criticizing how mistaken assumptions and presumptions have been used to weaken the standards for assessing exclusionary conduct.

Danny Sokol, I think you all know Danny, he’s a Professor at Law at the University of Florida and a Senior Advisor to White & Case. What it’s outstanding from his curriculum is what he did last year. Danny spent the prior semester as a Visiting Professor at the University of Florida College of Engineering, so he really has a truly unique perspective on law and tech, which I think is very valuable for today’s conversation.

Finally, but not least, Tad Lipsky is an Adjunct Professor and Director of the Competition Advocacy Program at the Global Antitrust Institute of the Antonin Scalia Law School. Mr. Lipsky served as a Deputy Assistant Attorney General under the William Baxter leadership. And more recently, he served as the co-chair of the Transition Team for the Federal Trade Commission following the election of President Donald Trump. Following his retirement, after 15 years as a partner at Latham & Watkins, he served as the acting Director of the FTC Bureau of Competition until July 2017.

So, as you can imagine, we have three wonderful antitrust experts, top-notch, and I’m looking forward to learning from all of you. Danny, please, do you want to get started?

D. Daniel SOKOL:

Thank you, Marianela. Before I begin, I know in my UF capacity, technically I’m a state employee, but I’m tenured, so I can say what I want. As a White & Case employee, let me disclose that both for companies mentioned in the report, and many not mentioned that have implications either I do work or the firm does work, but these thoughts are my own. So, I want to make just a few points about the report. In a sense, nothing is new because before the report was released, we already heard what the conclusions were going to be. In fact, very early on in the process Congressman Cicilline more or less told us what it would be. The only difference is that he said it would be a consensus document with the house Republicans, and that didn’t happen.

So, there are a number of things that I’ll focus on broadly at this point. So, the report, I think, goes outside what we think of as traditional antitrust to really fundamentally reshape the foundations, in some ways, quite extremely. So, I’ll give a few tensions. Number one, the report seems to suggest we don’t like how courts have created standards based on what Congress did, so we’re going to create new laws with new standards. But these are very amorphous, we have no idea what it really means, some kind of abusive dominant position, which I will infer, means exploitative abuse. But again, we have no idea.

And the other being an abuse of superior bargaining position, which we see in Taiwan, Korea, Japan, and People’s Republic of China. And here, again, we infer, because we have no idea, that it must be some kind of abuse based on some kind of privacy concern. So, for discussion of, well, the courts are changing the standards, it doesn’t help when there isn’t a clear standard of what it would be.

Number two, there seems to be an emphasis to reintroduce public utilities regulation-style regulation. Well, so, the odd thing is if we look at traditional public utilities regulation, they moved away from this. Frankly, under a Democratic administration prior to Reagan. And people forget, it was Fred Kahn, it was Ted Kennedy, it was Steve Breyer, who pushed for deregulation.

And then the other bizarre one is, if we look at non-public utilities, but heavily regulated, something that looks a lot like Glass-Steagall. If we look at the empirical work pre-Glass-Steagall in the American Economic Review, or post-Glass-Steagall’s repeal most recently in the Journal of Financial Economics, actually we find that competition improved as a result of the breakdown.

And this gets me to the next point, which is overall the report is strong on assumptions, but very little on actual empirics. And again, if you want to have a change, you want to create a factual record based on empirics to justify that change and we don’t have that. So, at the one hand, the report says, “We think there’s been too much emphasis against enforcement.” And I think Tim Muris correctly suggested that with regards to DOJ.

But then, instead of neutrality, what we’re being told is we want to have a presumption of illegality for mergers, which would fundamentally, across every industry, change the economic structure in the United States. Part of the report focuses on Big Four going after certain kinds of acquisition, that’s part of the business, well, there are plenty of reasons, and the question is, are they so dissimilar for other companies either elsewhere in platform tech? The answer is no. In other parts of technology? The answer is also no. And there’s a reason for that.

But it’s not clear in the report why we focus only on these companies if there’s a broader problem. And in fact, the only citation that they have is what is a very good paper, about killer acquisitions, which is actually firm specific. Now, the report is 449 pages long, literally only in one of those pages do they talk about the value creation, i.e. the efficiency enhancing aspect to platforms. Well, I guess we’ve moved from rule of reason to some form of, per se, illegality.

So, there’s a broader push between judicial branch and legislative branch. We’re told, “How dare the judiciary get ahead of the legislature?” Because that’s not the intent. If that’s true, I find it shocking on the Democratic House Judiciary side that they’re saying that because what they basically said is, if what they mean is true and we hold to their word, that we shouldn’t get ahead of the legislature, it means Roe v. Wade is invalid, it means Obergefell is invalid, Brown versus Board of Education is invalid. Certainly they can’t mean that. I would hope not.

Then, there’s a lot going on in the report I think that is just ambiguous, and I would’ve liked more clarity. Thank you.

LÓPEZ-GALDOS:

Thank you very much, Danny, I think those were wonderful introductory remarks, certainly if the recommendations included in the report are implemented, we will be reoriented, the US Antitrust system. But let’s listen to what Andy has to tell us about the report. What do you think about the report, Andy?

Andrew GAVIL:

Unmute. Hi, everyone, good day. And thank you Marianela, and thank you CPI and CCIA for sponsoring the event. Just a quick disclaimer that my thoughts that I share today are my own and don’t represent those of the law firm I consult for or any client or Howard University. I’d like to start by congratulating the Committee on the report. And the Committee staff, these sorts of reports are very difficult to assemble, and they have looked at an extraordinary amount of information, they’ve collected a lot of evidence and testimony.

And in doing so, they have shed light on a wide range of concerns that are being expressed about digital markets around the world. And in doing that, they have joined in the discussion that has been going on around the world. So, in many ways, it’s the culmination of a robust global dialogue about how antitrust and competition policy should adapt to the industries’ business models and social circumstances of our time. And it joins things like the Stigler report, and the Furman report in the UK, work that the European Union and European Commission have been doing, Australia, many jurisdictions.

And in some sense, we had fallen behind, the FTC hearings were an attempt to engage with that discussion as well, and FTC’s ongoing 6(b) study of Hart-Scott-Rodino reporting of mergers can also be viewed as part of this dialogue that has been triggered by critical arguments, critical article, studies, and it’s good to see this kind of engagement and the level of work that the Committee done deserves our praise and thanks.

One of the strengths of US Antitrust law has been its flexibility and its ability to adapt. And we should not be wed to the current state of play just because it has now become familiar. We shouldn’t recoil from efforts to question anew, whether the tools and methods at hand are meet for the task at hand. And doing so, I think we’re going to do a better job of engaging in the global discussion of digital markets. And more broadly about antitrust going forward.

And the exchange between the Majority Staff Report and the Third Way document, it evidences that there are points of shared concern and consensus that are possible. And I think that’s one of the important takeaways here is that obviously the Third Way report did not agree with everything in the Majority Staff Report, but there are clearly points of consensus and that strongly suggest to me that reforms are going to happen, there’ll be healthy discussion going forward about what those reforms are going to look like.

A few specific observations about the report’s findings and a few things that I agree with and some things I have concerns about. As Bill Baer testified last week and as the statement I joined in April along with a number of other academics expressed, all is not right in the world of US Antitrust law. As I argue in a forthcoming article that Nela mentioned with Steve Salop, the law has moved over decades as we corrected for arguably over-restrictive and lightly over-deterrent rules, we’ve internalized and have kept repeating as if articles of faith, various assumptions about markets and how they function, that has influenced how courts decide cases. It’s influenced the kind of presumptions that we use in cases.

And over time, an excess concern with false positives, overestimating the incidence and consequence of them, underestimating the incidence and consequence of false negatives. And continuing assumptions about markets, market power, the ability of markets to self-correct. These sorts of concepts that were really formed and advocated in a prior time continue to be advocated as if antitrust laws had not changed themselves.

And the antitrust laws of 2020 are quite different from the antitrust laws of 1995. The case law is different, it is far more defense oriented, it has over time continually raised the bar on plaintiffs, public and private. And so, I very much agree that it is time to reexamine that.

One comment about the role of economics and economists, I think that that’s proved to be something of a two-sided sort. In many ways, it advanced our thinking on antitrust competitive effects, both anti and pro-competitive effects. But it also created an expectation of certainty and specificity, especially in the context of judicial proceedings in courts. And I think that that expectation of precision has added to this tendency of courts to expect not tendencies and probabilities, which is what the law has required going back to Standard Oil. But far more exacting circumstances.

And you can see courts using words like clearly, and actual affects, even though the statutes, particularly in mergers for example, talk about tendencies. Section one in the rule of reason talked about tendencies and probabilities. And I think that, as I argue in the article with Steve, we need to return to some of those concepts, to make an adjustment and recognize that we can’t continue to make the same arguments we made 40 years ago. But I do have a few concerns. And I know we’ll get into some of these, and I don’t want to belabor them now. So I’ll just mention three.

I don’t favor a return to a categorical antitrust, in which we debate what little category each kind of conduct should go into. I considered an advance that we began thinking about collusion and exclusion, and going back to, is it tying? Is it exclusive dealing? Is it intra-brand? Is it inter-brand? Is it price? Is it not price? I think that that would be a retrograde in the context of antitrust.

And I think there’s more to the economy than what’s been called “big tech,” there’s my floating quotations. I don’t like that phrase, because the four companies that we’re focused on are different, they have different business models, sometimes they overlap, sometimes they don’t. And yes, by market capitalization, they are very large. But there are lots of other industries to be concerned about, healthcare for example is a very large chunk of the economy and is important right now. So, I worry that the shiny objects in there room have gotten too much of the attention.

And it would be a mistake, I think, finally, to pay lip service to the consumer benefits and the consumer value of those companies. It is clear that their growth has been spurred on by consumer choosing their services and I think that one concern I have is the sort of throw the baby out with the bathwater problem, that in all of the criticisms, I’m not sure that the benefits these companies have brought to the economy have been fully aired out.

I suspect that will happen over time, and I look forward to additional conversation with everybody. Those are my opening remarks. Thank you, Nela.

LÓPEZ-GALDOS:

Thank you so much, Andy. And before I give the floor to Tad Lipsky, let me give some information to our international audience that might not know all the details. The report is the outcome of a 15-month long congressional investigation where I think all of you have participated, have submitted comments, have participated as witnesses. And there’s been a lot of work behind.

So, despite that we may agree or disagree with the outcome on the recommendations of the report, I think we all commend the House for the work they’ve been doing. I don’t think anybody thinks that… that hasn’t been little work here. 449 pages, and a lot of document production, we might, as I said, agree or disagree, but the work has been humongous. And I think we’re privileged to be able to form part of the conversation. And we’re living unprecedented times, I wasn’t here in the late ’70s, so I feel privileged to be able to discuss antitrust, and see whether it’s fit for purpose, or whether it needs some adjustments as Andy seems to think. Tad, would you like to go next please? Thank you very much.

Abbot “Tad” LIPSKY:

Okay. Thank you, Nela. Also, the remarks you’re about to hear, my personal points of view, only by coincidence would they coincide with those of the institutions that I am now, and have been associated with. So, that’s my disclaimer. I also thank Danny and Andy for their remarks, much of which I completely agree with, although I think you’ll find my opening remarks somewhat more skeptical of the effort than those expressed certainly by Andy.

For those of you familiar with the secular holiday known as Festivus, I feel like the report leaves us in a place where we’ve had the airing of grievances, but in order to make any progress on specific reforms, it’s going to take feats of strength and perhaps even some Festivus miracles.

The 449-page document that’s been referred to is a report only of the Majority Staff. It was not joined by any member of the Republican minority. And there are these two separate reports by two small but overlapping groups of Republican members of both the full committee and the Antitrust Subcommittee. And the ranking member of the full committee has led a report which focuses almost exclusively on the issue of conservative censorship by digital platforms.

And the ranking member of the Antitrust Subcommittee joined neither of those minority reports. But the antitrust focus minority report led by Representative Buck notes some degree of agreement on the nature of the problems identified, but much less consensus support on the solutions. In the even the majority report is not attached any specific piece of legislation. And if proposals do come forward, one would hope that they would be very extensive and careful hearings and the usual mechanisms of legislative review would come into play.

So, the net impression is what we’ve got here is kind of a brainstorming effort rather than anything close to a fully formed legislative proposal. And the range of proposals, as you’ve heard, is incredibly broad. Even to the elimination of standing and injury requirements, the standing requirement authored in Brunswick, written by Justice Thurgood Marshall, not a known adherent of the Chicago School approach.

And the injury requirements authored by Justice Stevens also not famous for having any kind of pro-defense dogma in his antitrust jurisprudence. Then we have proposals for even the reversal of the pleading requirement in Bell Atlantic versus Twombly, which together with Ashcroft versus Iqbal actually changed the entire federal dismissal standard across the substance of federal law. So that would be a very far-reaching reform indeed and question how much success that’s likely to have.

Now, making some comments about the analytical quality of the effort, I have to… I guess the polite way of putting it is there’s a certain awkward fit in some respects between the main themes of the majority report and the actual history of US Antitrust. For example, the report claims to have discovered that current substantive antitrust doctrine is excessively focused on narrow price effects and ignores effects on other aspects of competitive performance such as, well, innovation would be the obvious example.

Whatever merit this claim might have had was surely extinguished no later than about 1980 and perhaps much earlier. Even in the 1945 Alcoa decision, still regarded as one of the great landmarks of section two law, and a landmark which was not in any sense friendly to monopolists, a key bromide of that case was the notion that the successful competitor, having been urged to compete, must not be turned upon when he wins.

And this embodies a fundamental reverence for the competitive hour of dynamic competitive forces that has suffused antitrust law and antitrust economics for many decades now. So this alleged discovery of a narrow focus on short-term price effects is what an antitrust law professor might regard as a red check mark mistake.

And it’s a matter of near universal consensus among micro economists that innovation is the main source of improvement in economic well-being and even a modicum of attention, the economic history will amply confirm the validity of that view. Antitrust absorbed that recognition a long time ago, and is simply not subject to any credible charge of excessive focus on short-term price effects.

A second point, and this applies to a number of things discussed in the report, particularly the majority report, is the report’s apparent reverence or interest in solutions drawn from various categories of prior sectoral economic regulations. With no apparent intentional irony, the report refers to the Interstate Commerce Commission regulation of railroads, The Hepburn Act, The Glass-Steagall Act, The Bank Holding Company Act, and the FCC’s now extinct Net Neutrality Rules, as positive examples for what might be attempted and achieved in the digital platform space.

And one could go down this list and notice many reasons why these historical precedents should be regarded as anti-competitive rather than pro-competitive. First is the basic fact that ICC regulation and Sherman Antitrust enforcement started out in life as twins. Very different solutions adopted at about the same time to very similar problems posed by the most important and dynamic network industry of the Second Industrial Revolution, namely the railroads.

One was an ex ante agency regulation solution, and the other was an ex post law enforcement solution. But it’s no accident that in 1995, the ICC was simply eliminated by Congress. Over its long history, ICC regulation became a kind of poster child for how not to apply public control to important economic sectors. It was subject to political chicanery, industry capture, and the iron triangle politics that stifle innovation, encourage anti-competitive regulation, and impede pro-competitive reform.

A close examination of this ICC model is not likely to provide much encouragement to those who seek ex-anti-sectoral regulations as a means of addressing whatever complaints are perceived to affect the digital platform space. And with regard to banking regulation models, for example, there’s an obvious difference that in a fractional-reserve banking system, there are enormous public externalities from risk taking by depository institutions since adverse consequences from investments in non-banking ventures have to be backstopped with public funds to avoid financial collapsed.

But these enormous public externalities are simply not present in the digital platform sector. So the rationale between huge firewalls, between platform activities and other activities are simply not evident. And finally, the net neutrality precedent is an essence of flashback to ICC railroad regulation on which Title II FCC regulation is explicitly modeled. The recent experience with those regulations, which were repealed in 2018 with very few tears shed, does not suggest that they have any great credibility if refitted for use in the digital platform context. Now, Nela, if I have just one more minute.

LÓPEZ-GALDOS:

One minute is a lot, maybe some seconds.

LIPSKY:

Okay. Just to mention that I want to turn the telescope around for a minute, because the dog that didn’t bark in the report is the relevance to the fact that the United States economy and these digital platforms exist in a global economy. The fact is that whatever US Antitrust is modified to do with respect to these platform companies is essentially going to be applied to leading US innovation engines that are really the envy of the world. And I would’ve thought that the more proper inquiry, at least one proper focus of inquiry for this report would’ve been foreign antitrust authorities using a lot of concepts and ideas found, for example, or suggested in the Furman Report, or in other foreign efforts to look at the platform sector, that have been turned around to impose billion-dollar fines and other competitive restraints on these leading US companies.

And it really struck me that an American legislative effort would not very seriously consider the possible adverse ramifications of not only adopting these regulatory solutions with respect to some of the world’s most innovative companies, that happen to be American companies, but also would fail to reflect on how the implementation of similar doctrines by foreign antitrust agencies might be regarded as an adverse impact that our legislature should take up and consider how to deflect. So, thank you for my extra time, Nela. And that’ll conclude my opening remarks.

LÓPEZ-GALDOS:

Thanks, Tad. Why don’t we dive deeper in some of the remarks that the three of you have given at the outset, and I’ve tried to organize the questions, we’ve received a lot of questions, as I said, before from the audience. So, in different blocks, so why don’t we get started with the institutional questions that we have received?

So, along the investigation, there was a lot of talk that the report would include a recommendation to create a new authority that wasn’t included at the end of the report. There doesn’t seem to be agreement on it. But my concern is that there it seems to be agreement in giving more funds to the authorities, DoJ and FTC, which I think is fantastic. But given the pressure on the ecosystem they are operating in, do we think there will be force in a way to open cases against the only four companies that are investigated in the report? Do we feel that these report in the future will put a lot of political pressure on the institutions to go against certain companies? Who wants to get started, Danny?

SOKOL:

Let me start by saying, number one, the agencies certainly need more resources. I applaud the recommendations from standpoint. Number two, let me also say that I think the staff at both agencies are very strong, very independent-minded. Historically, there was a lot more political intervention that we’ve been able to quantify at the agencies. I’d like to think that the staff are really independent. But now let’s get to the pressure that people face.

So, I think there’s two types of pressure. If the pressure is simply to say, “Take a significant look at issues.” That’s great. Andy is 100% right. We should constantly be tinkering with the system to make sure, are we asking the right questions? Do we have the right tools? Bringing a case is different than investigating. And then bringing a case, you also have to make sure that you have a good set of remedies that you thought about.

So there are a set of decision making processes across a process that we have to think about. And then, also, we’re assuming that the funding will only go to beefing up against a handful of companies. I actually suspect that we might be reorienting how we think about staffing at the agencies more generally.

In the 1970s, significant resources were put into Robinson-Patman, there was a whole group within the FTC that did nothing other than that. And it was the courageous work of Mike Scherer when he was Chief Economist to basically say, “This made no sense.” Actually was hurting consumers. And similarly the DoJ, Don Baker, as best I could tell, lost his job because he was unilaterally unwilling to enforce the criminal provisions of Robinson-Patman.

So, I think, from that standpoint, it’s fine that the agencies get more money. I think, maybe one of the areas where the agencies would benefit from more money, which is what I said in part in my statement to the committee back in April, have more data analytics, put it in the Bureau of Economics, give it to the economic analysis group. Get a bunch of data scientists there who can really help across so many different industries that are going through digital transformations.

And I think it was Andy and Tad who both basically said that, in fact, it’s a little narrow to focus only in one narrow, with a handful of companies, where in fact competition and innovation goes much longer. And I’ll give just one closing thought. I’m going to disagree in part with Tad, we can go back a lot further than Alcoa, specifically, I’d noted in my contribution in April, my favorite innovation case is American Can from 1916.

But frankly, if we think about non-price competition for a group that calls itself neo-Brandeisian, it’s a little odd since the nature of resale price maintenance is about non-price competition, Brandeis himself believed in rule of reason for that. So, it’s odd to say that antitrust has never been about non-price competition. I’ll leave it at that.

LÓPEZ-GALDOS:

So, one of the topics that is covered widely in the report relates to merger control. And DoJ and FTC have extensive experience in reviewing mergers. They’ve drafted guidelines. And I think there’s a well-established practice for mergers. As Tad Lipsky said in the remarks, one of the most remarkable aspects of the US economy is that it has fostered an impressive innovation ecosystem that for example we don’t see in Europe.

And part of the reason is because there are incentives to be bought out, there are incentives to invest in startups. Some of the recommendations in the report said yes to ban only a few companies from acquiring others and to amend some of the merger control rules in the US by shifting the burden of proof. I would like to hear from what you think about the proposals and also whether it would apply only to four companies kind of micromanaging these four companies and telling them what to do or not, should the recommendations move forward or will they be applied to the whole economy? And what impact it would have on consumers and small businesses? Andy, you want to go next?

GAVIL:

Sure. I think it’s, in terms of the report, there’s a mix of things that might be sector specific and other things that might be more of greater breadth in terms of the effects. And we definitely need to think about unintended consequences. But Tad wanted to talk about history, Danny has referred to it. If you go back Kaysen and Turner’s book in the late 1950s, they were using far lower market share thresholds as thresholds of concern. The 1968 guidelines used far lower thresholds under Don Turner’s leadership.

So, the idea of thinking about where we are drawing the line in mergers is not a new idea. And in fact, in the 2010 Merger Guideline Review, the thresholds were raised. At that time, the argument was, “Well, this will more accurately reflect what the agencies are doing.” But we moved from an 1,800 HHI threshold for highly concentrated towards 2,500 one.

So, I think that one thing that might happen, and it would have to happen if the merger statutes change, is that we would revisit the merger guidelines. And we would think about what is the level of concentration and under what circumstances does the level of concentration give us concern? So, we shouldn’t be automatically knee-jerk reacting to revisiting that. There’s certainly been different standards over time.

On the other hand, I think that we have progressed in many ways. HSR was a really important innovation that requires mergers to be pre-notified. It gives the agencies an opportunity to review them and to establish standards over time. But I think we have seen in recent years that when the agencies go to court, Justice Stewart’s famous, “The only consistency I see is the government always wins.” Well, that certainly isn’t true any longer.

And if you parse the decisions that are coming out of the courts, you see a range of issues in terms of the burden of proof that’s being imposed on the government. So, I’d like to start by fleshing that out, and acknowledging that perhaps our standard for proving what is likely to be, an anti-competitive merger has become very demanding and requires adjustment, that may be in the numbers, but it also may be in the evidentiary expectations when these cases go to court. I think that it is definitely an area that needs to be revisited.

Another point that’s raised in the report and has been raised by a number of other folks is how we approach the acquisition of nascent and potential competitors. There were lots of cases evaluating that. We had in the ’70s, doctrines of perceived potential and actual potential. It morphed a little bit into considerations of entry, and whether mergers were entry-barring.

But I think at this point, we do need to revisit the standard and expectations that we have in terms of proof, so that we can get back to, wholly aside from whether we go further back, but we at least get back to the idea that the standard should be mergers that have a tendency or probability. And we shouldn’t be so hesitant, given the mixed history of efficiencies being realized, we should not have such hesitancy to stop mergers in their incipiency.

LÓPEZ-GALDOS:

Thank you very much, Andy. And I foresee a lot of conversations around those issues coming forward. Any views, Danny or Tad, on how consumers or small businesses could be impacted if vertical integrations, mergers, vertical mergers would be analyzed differently? Tad, you want to go next?

LIPSKY:

Yeah. I guess I’ll take a cut at that. I certainly don’t disagree with Andy’s support of what I think is really the issue of intellectual honesty about how the merger process works. And there’s a lot to be said in terms of whether predictions of efficiencies are followed through, and what I think is the more critical issue, the way the legal system is now structured, how about predictions of anti-competitive effect. And I think the system still has it pretty much right, that the burden should be on the government.

And since we have this magnificent structure, which we refer to as the Federal Judiciary, to put the burden on a claimant, whether it’s a government agency or a private plaintiff or a federal agency or a state agency, say, we want you to persuade this independent decision maker, who has to see all the evidence and has to digest all the arguments and put his name on a decision that explains exactly why he’s ruling as he is, I think that’s one of the really great safeguards that the American, the federal constitutional system has provided us with and we should take advantage of that.

It’s a terrible disadvantage that, in some respects, that I think it is still accurate to say that there has not been a plenary Supreme Court decision in a contested merger case on the merits of competitive analysis since General Dynamics, which was 1974. Andy, I see you nodding yes, I’m very happy to see that. So, I don’t know why that is, I mean, we can speculate, but it might help to get our Supreme Court to weigh in on some of these issues. It might clarify and organize things for the agencies, for the compliance community and also for the lower federal judiciary.

But, going right back to your question though, Nela, I think it’s really critical. It bothers me a lot that when we talk about mergers outside the horizontal context. In horizontal mergers, you’re eliminating some degree of competition, and so there’s always kind of a prima facie question to ask, what are the markets? What’s the effect likely to be?

But when you go outside the horizontal area, you’re talking essentially about choices that firms make as to what their activities are going to be. And the freedom to choose what activities you’re going to engage in is so fundamental throughout our economy that if you adopted a legal standard, that essentially prohibited a transaction until there were some significant burden matter, some justification, or some tangible, identifiable public benefit proven.

It would be a totally un-administrable system. I think this was proven not necessarily in a merger context, but in a very similar context when the European Economic Community competition rules were launched in 1962 based on the Treaty of Rome in 1957. A kind of a presumptive illegality approach was adopted to restrictive agreements under then article 85 of the Treaty of Rome.

And what you found was that the commission was inundated with tens of thousands of notifications and exemption applications from businesses that wanted totally innocent, common, ordinary agreements, commercial agreements. Licenses distribution agreements, franchises to be protected from being rendered void or subject to fine. And it totally froze up the system, and it took really almost 40 years to get it completely unstuck. And someone argued that it’s not really unstuck at this point.

So we have to be very careful when you cast some kind of general shade over non-horizontal merger activity, whether it’s vertical or potential competition or what have you.

LÓPEZ-GALDOS:

Thank you very much, Tad, and I think that is very important, and what you mentioned before about competitive assessment is also very important. Because another recommendation that we see in the report is the recommendation to break up or to force separation of business lines of certain businesses, where the concern is that consumers are getting too lower prices. And that concerns me a little bit about the report putting a remedy before, suggesting a remedy, I would say better, before finding a competition harm to consumers concerns me extremely. I wonder whether you have any views on those recommendations. Danny, would you like to take a take? Would you like to?

SOKOL:

I think actual breakup is quite extreme. We’ve had a handful of situations of that in antitrust. Normally, we want something short of that, because as you might imagine, breakups are difficult. Andy certainly knows this from his Microsoft book. And let me also be clear, I think it was great to bring the Microsoft case. And for those that wonder like, “Oh, section two doesn’t have the power.” Again, I’d say, “Hello, Microsoft.” Last time I checked that was the case of at least the last century.

But if we look actually at the original breakup of Standard Oil, it turns out the empirical work suggested the person who benefited most was Rockefeller, because actually what they reproduced was a series of more localized monopolies. So, overall, if there’s some anti-competitive harm, do we want to have a bit more precision? Yes. There’s a weird thing here going on with something that’s, let’s call it, not functional… or not actual breakup, but functional breakup by basically saying, “You have to stay in certain lanes. We’re going to honeycomb what you can do as a company.”

So, this gets, again, we have no idea what this term self-preferencing means, it’s not quite defined very well. If it looks like monopoly leveraging, that’s falling in disfavor at least to the United States. So, we think of, again, one thing that we tend to not put enough emphasis on with regard to the discussion of the report is, there may in fact be value creation in these platforms. Andy mentioned that in his earlier comments.

And the reason why that matters is because, in fact, consumers may benefit by entry or potential entry of any number of companies, including some of the same companies that use the information that they may have in one area to potentially enter into another area. So, are we really saying that a company that’s active in social media shouldn’t enter general search? Or a company active in general search shouldn’t enter into e-commerce? Is that really what we’re saying?

And I think that if we believe the report says that we’re concerned about the power that certain companies have, wouldn’t we want to actually have the pro-competitive side basically breaking down the positions of existing companies in those area, let alone having the opportunity, to a certain extent, and Andy can correct me if I’m wrong, even in the Microsoft case, I don’t think that any of the proposed remedies actually got us to what seemed to solve the problem at neither level, district court or circuit court, well, frankly, as best I could tell, DoJ, they anticipate where the real entry would come in, it was a high school kid at that time named Zuckerberg, it was this other guy, Sergey and his buddy Larry, these are the ones that basically broke down Microsoft’s position, not the remedies that we saw in the courts. I’ll leave it at that.

LÓPEZ-GALDOS:

Thank you very much, Danny. I’ll take the opportunity for a little bit of self-promotion. At CCIA we’ve made the effort to put in a paper why we believe the framework of the district court decision in the Microsoft case is fit to tackle potential anti-competitive problems, and I’m more than happy to share with anybody that is interested. So that’s the bracket, the advertising bracket here.

And another part of the report that I want to get into is the ones pertaining section two. To me, personally, the report is a little bit nubilous, or a little bit blurry with respect what is recommending. There are a lot of recommendations to revive essential facilities, predatory pricing, so on, so forth, even to override most of the Supreme Court cases. So, to me, there seems that there was a lot of discussion internally, but there wasn’t a good agreement on what should be the way forward. And the other question I have with regards to this menu the report has on section two is whether if the recommendations are adopted, whether the US will be moving more into a EU type of competition system. Andy, you want to react first?

GAVIL:

Sure. The truth is, is that it has become very, very difficult to prevail in a section two case in the United States. That’s true whether it’s monopolization or attempt to monopolize. And this one is, Tad and I were actually discussing just before we started the program, this isn’t a recent development that you can tag to some particular school of thought.

It was Holmes in Swift in 1985 who said, “Sherman Act, common law, criminal offense, therefore for attempt you must show a dangerous probability of monopolization.” You layer that on top of Alcoa, in the 1940s, with its market share benchmarks, and dangerous probability of success means dangerous probability of reaching a level of monopolization. That has created a gap in US Antitrust law. And the gap is for a firm with market power that engages in unilateral exclusionary conduct, but all it’s doing is maintaining its market position. In European language, abusing its dominant position.

But if there’s no concerted action, it won’t fall under section one, and if there’s no dangerous probability of it moving the needle on its market share, if all it’s doing is protecting its 40% or 50% of the market, our law has a very difficult time reaching that. That is not a gap that was inherent in the Sherman Act. In fact, if you go back to Standard Oil and the legislative history, section two is supposed to be closer to and complement section one. There wasn’t supposed to be a gap.

But the Supreme Court declared that in Copperweld. That has had a lot of consequences, along with other developments, for making it very difficult to bring and prevail in section two cases.

So, I think that that’s an area that is right for change. I had a blog post on this last year on The Washington Center for Equitable Growth, Competitive Edge blog, thank you Mike Kades for inviting me to do that, where I tried to lay out some of these issues that have evolved over times decades and decades. So I think there’s a reason why you don’t see a lot of cases brought.

As Tim said in his remarks earlier, you don’t see the Department of Justice bringing hardly any section two cases. Now, we have some pretty significant investigations. The agencies are going to be looking back at that case law. They’re going to be looking at Microsoft as the most recent big case that’s been brought. And depending on the evidence they find, they may be encouraged or discouraged in terms of the likelihood that they’ll be able to succeed with any kind of significant challenge.

So, I think that our approach to monopolization does need some revisiting, does need some rethinking. And I worry that it’s going to be very hard to work within the scope of section two, given 100 years of case law. That’s why for example Senator Klobuchar’s bill suggested really a different offense, just sort of starting from scratch and trying to define exclusionary conduct.

We could debate the pluses and minuses of the particular bill, but it may be that we need to think differently about what we mean by exclusionary conduct in the context of firms with market power. And I think that that is a debate, a discussion, that’s very much worth having.

LÓPEZ-GALDOS:

Thank you, Andy. And does Tad or Danny want to react to Andy’s comments shortly? All right. We are coming to the end of the program today. But I don’t want to leave without giving each of our speakers one minute each to maybe brainstorm with us what they think the future, the next months are going to be in the antitrust world. Before I give you the floor, I want to mention that I found, while I was preparing for the panel, in addition to reading the 449 pages of the report, I found a paper by Kovacic that revisits Pertschuk’s term (LINK).

It does revisit some of the post amendments to the competition laws that were enacted in the US and how the agencies suffered, or how the agencies faced challenges in making that happen, enforcing a broad sense of competition. And I think it’s worth taking into account all the perspective that might impact if the reforms are implemented, particularly to consumers and small businesses. So, having in mind, consumers and small businesses, what are your thoughts regarding the coming months in the antitrust world? Andy, you want to go first?

GAVIL:

Sure. As a small business myself, and a consumer, I think that the caricaturing that has gone on of the importance of making sure that the economy is robust in the sense of small businesses having the opportunity to enter and to compete, there’s some caricaturing going on sort of dismissing that as a concern. That is a societal concern. What policy is best? And I think that resorting to a different terminology instead of limiting ourselves to thinking of US Antitrust law is just antitrust.

We do need some competition policy reforms, we do need to think about how people access venture capital, how they enter businesses, how they promote innovation in established businesses. Those are all things that we should think about. But we should think carefully about whether a judge, a federal judge, sitting in an antitrust case is really going to be able to trade off and evaluate the interests of small businesses versus shareholders versus the company versus employees versus unions versus consumers.

I don’t think very many federal judges would welcome that role. And for my closing remark what I’d say is, law enforcement against particular firms, specific firms, has its limits in terms of its utility. You can negotiate or litigate to some remedy. And as Danny said earlier, it’s really important to have a good sense of what remedy you’re searching for.

But if there are broader issues in our economy that are not firm-specific, then litigating to an end, even if the agencies could do it and find the resources to litigate to an end cases against the largest companies, whether in the tech sector or any other sector. What you wind up with is a patchwork of remedies that are firm-specific, and you don’t really get at the problem, if there is a larger problem.

So I think the challenge going forward in the coming months is going to be to examine the report, which uses the four big tech cases as case studies, to inform broader recommendations. And we need to ask some questions about the reliability of the case studies. Are they balanced? Are the reforms being suggested a good match for the issues that were identified? And although I know Tad doesn’t like the word regulation, it could be that there are issues better addressed through ex ante regulation than ex post litigation if there are issues that go beyond a single firm.

Otherwise, if we just continue, I mean, what consequence did Microsoft have on the rest of the industry? Except as legal precedent, the answer is none. So I think that we’re going to see a robust discussion in the coming months, because it does go to political differences about the rule of government and the rule of ex ante regulation as opposed to enforcement.

LÓPEZ-GALDOS:

Thank you very much, Andy. Tad, you want to go next? I think you’re muted, Tad.

LIPSKY:

Yes. For some reason my tabs weren’t working right. Sorry for that. Yeah. Just to make clear, Andy correctly understands that I’m very skeptical of regulation, but of course I don’t think it should be ruled out. And in fact, I think I could join him in reflecting that there may be certain types of problems that might be better addressed through regulation rather than disrupt what I think is a pretty well-functioning set of antitrust institutions at this time.

And in fact, some of the problems, if you look at the issue of data portability, which has been mentioned fairly prominently in this report, there actually is some voluntary action, and there may be something even more in the nature of a private standard, even before you get to the question of whether regulation is essential that might help address certain types, important types of grievances that have come to light in the digital platform sector.

But I think my concluding comment would have to be, assuming as I do that there will be some kind of tangible legislative proposal coming forward, let’s look at the big picture. We have the Interstate Commerce Commission approach, 1887, and the Sherman Act approach, 1890. The Interstate Commerce Commission approach is dead and gone, and very few tears shed I think. But the persistent refinement and improvement of our current antitrust approach has a lot to do with the fact that the United States has had this absolutely extraordinary, unprecedented stretch of innovation and spectacular economic growth. Our GDP has tripled since the antitrust innovations of the mid 1970s.

The most valuable and envied R&D companies and technology companies in the world are predominantly American. And because antitrust law has been our main system of limiting… The general one of anti-competitive conduct throughout the unregulated economy, our existing antitrust has to be given a very significant degree of credit for that. So, when we get to the… It’s the old, don’t kill the goose that’s laying the golden eggs.

When we get to the point of considering specific proposals, let’s have very careful science-based objective review of causes and consequences, that would be my concluding remark.

LÓPEZ-GALDOS:

Thank you so much, Tad. Danny, you want to go next?

SOKOL:

Sure. In spite of what seems to be disagreement amongst myself, Andy and Tad on certain issues, I think in terms of general framework, there’s a lot more agreement than disagreement. So, I’ll just, having said that, focus on where I think may be a little bit differently. So, I think courts play a critical role and will always play a critical role. So, the standard thing that we tend to say across any area of complex reality is, “Well, generalist courts don’t understand, let’s create an expert agency and leave it to them.” And from a decision making process, it’s not clear to me that that’s always the right move.

But that’s certainly something that we should discuss. And are there targeted areas to Andy’s point, and I think to Tad’s point as well, where there may be certain trade-offs in regulation, where regulation is to be preferred, because there’s simply different goals? Legitimate conversation to have.

Do we think overall that this discussion needs to be informed a little bit better, for Tad’s point on scientific evidence, that sure, but here I think we’ve shunned a lot of the science. So if you look at the top journals that have focused on platform issues, particularly on the empirical side, since 2000, there have been roughly 250 papers. Not more than a handful of them have actually been in economics.

Where’s the innovation in thinking and empirics? Finance, information systems, operations a little bit, marketing, management/strategy, all too often, this has been ignored in the debates. So there are any number of really spectacular academics in this area that don’t get really the attention that they deserve.

Anindya Ghose, Catherine Tucker, Feng Zhu, Marco Iansiti, Marshall Van Alstyne, Geoff Parker, to name simply a handful within a vast set of fields. And I think, as someone who did spend last semester in an engineering school, and who is an Affiliate Faculty member in our ISOM Department in the Business School, it would help to actually understand the technology better, understand the empirics. We’re not starting from scratch, much the same we don’t start from scratch with regards to development of common law, which I think is flexible and we underplay some of that flexibility, and we do see changes in both directions.

And I’m with Andy, by the way, that there are some assumptions that maybe we do want to push back, where we think the common law has gone too far. That’s really for agencies to do and for private plaintiffs to do. And where we’ve gone too far, I think of course, we’re going to see the pendulum move back. And that’s part of the process, it’s part of a broader process and that’s healthy. And to the extent that the report has meant that we’re rethinking our assumptions to make sure they’re still accurate, that’s fine.

But to the extent that the report has us going down various rabbit holes that will destroy innovation and frankly destroy the nature of the economy, particularly with regards to merger presumption, that you have to prove efficiencies, given that, and unless my colleagues think otherwise, I can’t think of a single case in modern antitrust won on the merger context on the efficiencies. So, effectively creates a per se rule against mergers. That’s not what we want to have. Thanks.

LÓPEZ-GALDOS:

Thank you very much, Danny. I would spend hours talking with the three of you and discussing antitrust. I’m sure we will have more opportunities in the future. Without a doubt there’s going to be debates around what the right antitrust framework is for the US, hopefully we will have those conversations based on evidence and real facts. But unfortunately I have to conclude the program for today. I want to thank our speakers. Thank you so much. It’s been my privilege to moderate you. I want to thank the audience and I wish you all a wonderful day. Thank you.