Antitrust Policy in the 21st Century: Is There a Need for Reform? – Session 1

Below we have provided the full text transcript from the first panel of our recent roundtable discussions, Antitrust Policy in the 21st Century: Is There a Need for Reform?, from June 26.

Randal PICKER:

Hi, I’m Randy Picker. I’m really excited to be here to try this experimental format. With CPI, we’ve put together these antitrust policy roundtables. We’re going to do them for a few weeks, and see where we are. As you know, the house subcommittee is doing an investigation of digital marketplaces, and a bunch of people were asked to write statements. Those statements have really created really interesting record. The point of this series is just to look at some of those statements, and bring the authors of those statements in, so that’s great.

We’ve got two people here today who fall into that category, Herb Hovenkamp and Sharis Pozen. They’re going to give statements here in just a second. We’re going to have a conversation. It’s a small group, so we ought to be able to have a fairly intimate lively conversation. We’re also recording this, because we want to participate in the larger conversation that’s taking place about these issues today.

I’m not going to do introductions. You’ve got devices. You have a list of people. You can Google. I think we’ll get going. I think Sharis Pozen is up. Sharis?

Sharis POZEN:

Thank you. Thank you, and what a esteemed group to be a part of. It’s thrilling. As you said, the House did ask some of us questions, and some of us wrote back and answered those questions. I was among those privileged to do that. I thought for today, I would take that and meld it into a little broader discussion. Herb and I did collude a bit. We don’t know how much we disagree or agree. We think we mostly agree on things.

I thought I would discuss the state of the current debate on digital platforms in the U.S. and where we are. It talks about some of the case law that I raised in my answer, and some of the concerns I have about that. Then if there’s time, talk about the debate over having two agencies in the U.S. and where I see that as well. I thought I’d start. I love Shakespeare. I love the Tempest, past is prologue, what’s past is prologue, if we remember that from Shakespeare.

I actually mean that when I think about whether the stage is set for a challenge to Facebook and Google’s anti-competitive practices. I am concerned that these large powerful platforms are continuing to grow exponentially as we sit in debate. We just saw Facebook buy jiffy, and that was a non-reportable deal. I think it has significant impact on its rivals, and it’s just another in a series by Facebook. It’s all going on while we continue to debate the issues like, “Do we need the antitrust statutes? Do we need to consolidate our antitrust agencies? Should we alter our consumer welfare standard?”

I don’t want to be misstated or misunderstood. Debate is healthy. It crystallizes our thinking. I don’t doubt we need a broader look and to think about our platforms and even regulation. I’m not condemning the debate, but I’m worried that we’re possibly going to the point where it’s turning into navel gazing. Before I used that term, I looked it up to make sure I knew what that actually meant, because we use it so much. It is as self-indulgent or excessive contemplation at the expense of the wider view.

I think that that is my one concern. I worry that our U.S. agencies are certainly taking a lot of time to contemplate and potentially build a case. I’m sure there’s a lot of great work going into that. We’ve also had a lot of great work. I really want to commend it that’s out there. The Stieglitz committee report on digital platforms from 2020, and then long report on a lot of different issues. But the guts of it in terms of thinking about platforms, thinking about whether they’ve violated the antitrust law, I think, are embedded in there.

We now have the Omidyar Network coming out with roadmaps by two very reputable, one a former dag, Scott Morton and Dave Dinielli who litigated and litigate. We have roadmaps now. I’m not sure what’s holding us back. I certainly know there’s litigation risks, and when the group of us got to DOJ in 2009 in the Obama administration, I think Josh will probably remember the moment when one of the section chiefs at the time said, “I think I figured you out. Your team came out. You’re recalculating litigation risks.”

I can remember as we debated litigation risk, which obviously is at the core of digital platforms and whether there should be a challenge, there’s no doubt. I remember Phil Weiser, who was the deputy assistant attorney general at that time. He’s now the Colorado AJ. He was very much a thinker and teacher of antitrust like so many of you. He would say, “When we think about enforcement action, we need to think about what’s good for consumers, and whether we’re advancing antitrust laws, and those should be our North Stars.”

We really did try to follow that. It was the time that I was at DOJ. When I think about litigation risk, that’s where I get to the cases that I raised in my answers to my questions, because I do think with the courts and some of the cases as they stand today, they increase the litigation risks. We’ve seen the American Express case. I know Herb wants to talk about that as well. We’ve seen it used in a merger context by Obama appointed judge. This is not trying to be partisan here, but that confusion that that raised in the Saber and Farelogix case as they tried to apply.

I think the defendant’s very readily muddied the water around what a two-sided market looks like, how we should evaluate it. I think that that case has inhibited us to some extent. I also think that in Trinko, I think we see the Trinko case largely over read. I’ve been in meetings with people who talk about Trinko, and Trinko really is going to stop us from bringing any refusal to deal a case. Actually, at my own view, it’s an over reading of Trinko.

Trinko reaffirms that, I’m quoting from Trinko, the high value that we have placed on the right to refuse to deal with other firms does not mean that right is unqualified. How much clearer does the court have to be? Don’t just throw Trinko out there. It actually has limits on it, in my view. Also, what I find interesting, is we don’t hear a lot of discussion around it. I’ll reflect back to a time when I worked on the Microsoft case, and I sat in the courtroom for the opening arguments of Roberta Katz who is the general counsel of Netscape.

As David Boies start putting email after email up on the screen of the court room, she started weeping actually, because she realized at that point how seriously and how intentionally Microsoft had aimed at creating barriers to entry and shutting down Netscape’s browser. I would suggest there may be no like that today. Hopefully, the government and the other investigating authorities around the world are finding those, because I think they do matter. I do think, again, there’s a little bit of an over reading of the Novell versus Microsoft case.

That’s a Justice Gorsuch opinion, because they are… He does talk about the burden, a monopolist conduct… This is a quote from the case, “Put simply, the monopolist conduct must be irrational, but for its anti-competitive effect,” a lot of people interpreted that to say, “Well, that means it’s all about business justification, and who cares about intent?” I don’t think that’s right. What do we do about it? Whether we think about it, what cases we bring I think will be important.

I do think that there is a basis. There’s a platform on the Microsoft case to go forward, and think about the anti-competitive conduct, and possibly challenge the anti-competitive conduct of the platforms today, particularly Facebook and Google. I think that these cases are causing some of the issues. I think we need to figure out what’s the way to clarify them. Maybe it’s through this litigation, we could do it, but I think the good staff at DOJ and the FTC are working hard on these cases, there’s no question.

I have the faith that maybe they could take these kind of ideas, and pivot forward and think more about, again, what’s going to help consumers? I think it is curtailing the power of these platforms, and two, what’s going to help the law? I think clarifying at least these three cases, if not others, will help the law. The only final note is on the two agencies. I did say this in my writing. Bill Kovacic has been outspoken on this as well. We’ve seen China consolidate agencies.

We have two agencies right now that are investigating the platform, seemingly simultaneously. We’ve had times, and Josh and Doug and others who have served in the antitrust division can attest to this. There’s been times. There’s always the lore around the hiring of an arbiter to handle clearance battles at the agency. It’s not an easy relationship. Maybe the time has come we study it a little bit more. We figure out, “Is there a better way?”

I really do hope that we can do that so that we can either end the debate or come to some conclusion. Those are my views, and I look forward to the discussion.

PICKER:

That’s great. What I heard there was that you are ready to see some lawsuits brought, and you’re ready to consolidate these agencies. That’s good. Herb, you’re up.

POZEN:

I don’t know about consolidating agencies. Think about consolidating, Randy. You’re putting words in my mouth.

PICKER:

I’m an overeater apparently. All right, go ahead. Herb, you’re up.

Herbert HOVENKAMP:

Thank you. I want to just raise a couple of issues too. I’ll try to get straight in and out of my points. First one I want to talk about is raised by my letter, but not grasp at any length, and that is whether the platforms are winner take all or natural monopoly markets, both of the two tails in this debate, the left and the right, have both made the assertion that the digital platforms that are winner take all markets, and they’ve drawn very different conclusions. The right, you see the view that, well, antitrust really can’t do anything about these markets because they’re natural monopolies.

The left begins with the same premise, but concludes that what we really need to do is regulate rather than apply antitrust law. I think most of the digital platforms including the big ones are not natural monopolies. Facebook is a possibility, but I’ll tell you why. Number one, they are clearly subject to a positive network externalities, indirect network externalities that favor large installed bases on both sides. That, I think, drives many of the conclusions that they are winner take all markets.

I think what that does not take into account is the extent, the scope and durability of product differentiation. I mean, natural monopoly models usually assume fungible products. This is a variation of the debate that Alfred Marshall experienced already in the late 19th century. He was not able to get an equilibrium in markets with high fixed costs until people came along with product differentiation models that show that equilibrium wasn’t quite possible. I think the real key to understanding the propensity toward monopoly in the digital markets, in the platform markets is there’s product differentiation.

I’ll just give you an example, dating sites. Dating sites are clearly subject to externalities on both sides. You’re looking at a conventional site like match.com that pairs up men and women. The more women are on the dating site, the more attractive the site will be to men, and vice versa. That would suggest that this should be a winner take all market, but it is not. There are several dating sites. Multiple dating sites have been around now for 25 years. Interestingly, when a single firm comes to acquire multiple dating sites, and here the leading example is Match group.

Match now controls about a dozen dating site. It does not merge them. That’s inconsistent with a natural monopoly model. It doesn’t merge them together. It maintains them separately with separate subscriptions, separate customer lists, and so on. I think the real reason is that they are differentiated from one another. As long as significant differentiation is possible, there’s going to be room for competition. I think that also explains, for example, why it’s search engines, why Google dominates the search engine market.

It’s fundamentally much more difficult to differentiate search engine markets than it is to differentiate dating markets. There have been some attempts that entered many years ago with a search engine that hindered tracks, but now, all of the major search engines have copied that. As a result, we do tend to see more winner take all style behavior in search engine markets. I also think that the extent and importance of product differentiation, there’s at least a partial explanation for the very large number of acquisitions you see in platform markets.

That is to say the acquisitions operate both as a mechanism for differentiating one’s product, but also as a mechanism for closing off differentiated entry. A good example would be Facebook and WhatsApp, right? Facebook had a messenger at the time of WhatsApp acquisition in 2014. It had a messenger, but it wasn’t as good as WhatsApp. WhatsApp came in with another set of features, and WhatsApp had the potential to turn into something much, much more. I think that is very likely the explanation for why Facebook acquired it.

Tentatively, my suggestion is that we think of the platform markets as competitive. Many of them have a model of a dominant firm with a more competitive fringe. I think there are a couple of technologies that are prone to winner take all search engines being the most prominent example, although we still to this day have many search engines and significantly specialty search engines, which are an example of product differentiation.

Secondly, I want to spend just a minute on AmEx. Amex has been hurled so many times, and this group certainly knows it well. I think the most serious errors of Amex that affect the analysis of platform… Sharis mentioned a couple of them. One is Amex is conclusion, majority’s conclusion that only platforms compete with other platforms. That’s what drove the judge’s decision in the Sabre case, holding that essentially a merger of a two-sided platform, internet airline reservation system.

The more conventional airline reservation system was not a merger of competitors. Well, that idea requires serious examination. More importantly, it undermines the general rationale for whom we decide who competes with whom. I’m sure the Philadelphia Taxi Association has very different views about whether they compete with Uber after a lengthy antitrust battle. Of course, they compete with each other. The issues are whether the traditional antitrust issues, whether they are able to steal sales from each other at sufficient magnitude to drive one another’s prices down close to costs.

That remains the fundamental question. In some cases, two sided platforms may be sufficiently distinctive that that doesn’t happen, but another side, in other cases, it will. We can’t simply state categorically that platforms compete only with other platforms. The other disturbing thing about Amex was the majority’s conclusion that irrelevant market must be defined in any case involving a vertical practice. Now, the scope of that decision isn’t really clear yet. We don’t know, for example, whether it applies to vertical mergers or only to vertical contract practices, like the Most Favored Nation agreement that issue in the Amex case.

The footnote that expresses that conclusion to me is completely indecipherable. I have no understanding of what the rationale is, and Justice Breyer’s dissent was somewhat flummoxing as well, but the fact is digital markets produce a great deal of price and elasticity information. Then makes them prime targets for more direct measures of market power. The Amex decision appears to cut that off for the time being. Then finally, FRAND and Qualcomm. I commented on this a little more at length in my letter.

FRAND has been an extraordinarily valuable institution that has enabled a great deal of development in networked communications industries, certainly cell phones, autonomous driving, video technology, and so on. However, it’s a somewhat vulnerable collaboration. I think Judge Poe was right spot on in her decision to condemn Qualcomm’s violations of its friend agreements even to condemn them as antitrust violations. There’s been this critique on the right that these are merely breach of contract.

Well, of course, there are breaches of contract, but there’s no dichotomous relationship between breaches of contract and antitrust violations. Cases all the way back to Dr. Miles and Sylvania were fundamentally breach of contract basis that became antitrust violations, where the market power and anti-competitive effects requirements were met. As far as Aspen goes, just as a side here, which Sharis bet, we’re fond of saying that Aspen was at the outer limits of Supreme Court refusal to deal, doctor.

Well, that’s true, but that’s a factual conclusion. Based on Aspen’s specs where there were lots of reasons to doubt about whether the refusal to deal in that particular case was anti-competitive. If you’ve got a case in which a firm has used prior commitments to govern the future development of technology, so you have a great deal of path dependence, and then that firm pulls the rug out from under those commitments in ways that can harm consumers. That’s important, because they have to be anti-competitive.

Then I think there’s still room left for a unilateral refusal to deal rule. Thank you. I’ll sit back and listen for now.

PICKER:

That was interesting. I heard a couple of things there. I heard product differentiation, a natural monopoly. Amex, you hate it. I know my case book co-author, Doug Melamed, hates it too. Then friend, which you’re very much in favor of, but we need to figure out how to make it work. That’s good. Great. I think we’re ready to have the room talk. People are ready to jump in. I can cold call. Okay, good. It looks like we’re going to go to Doug, then Koren, Gus, I guess. Oh, Hal too. Great.

Douglas MELAMED:

I agree with probably everything that Sharis and Herb said, but I put it together a little differently. I agree if the platforms were natural monopolies like the water company or something, maybe we would have a different conversation. I don’t know however that it depends a whole lot on whether they’re winner take all markets or not, because they could be winner take all markets in a potentially competitive environment where so called leapfrog competition or competition for the market, and the antitrust laws should be in that case vigilant to protect such competition.

I think that may be what we have now or the winner take maybe not all, but winner take most is maybe a better way of putting it. I’m not sure I’m quite where Sharis says with respect to these roadmaps. There’s a lot of suggestive narrative and journalism about the platforms suggestive of antitrust violations, but none of them makes the case in my view, because none of them is sufficiently rigorous in connecting the alleged conduct with particular harms to competition.

I’m not saying the connection can’t be made. I’m simply saying these narratives have made antitrust lawyers capacious enough and conceptually sound enough to do that, to make those connections to bring the cases and to have, I think, effective remedies. The problems, though, are as Sharis and Herb said, there are some bad cases out there. More than that, there are cases that weren’t so bad on their facts, but that happened part because of the way the opinions were written, and in part because of what’s happened with the judiciary have been expanded in ways that are quite damaging.

I’m thinking of, for example, the predatory pricing rule which is not a bad rule. In predatory pricing case, you can argue about the recoupment requirement, but the basic rule is probably pretty sound, but extending it to loyalty discounts and putting burdens of proof on parties the way the court should have done. You’ve taken an interesting concept and made it basically a get home free, get jail card for predatory prices, same things with Trinko and Aspen.

Amex is just an unimaginably horrible case. I think what it illustrates is a major problem that we have, which is bad judges. By bad, I don’t mean corrupt or incompetent. I mean a combination of judges whose understanding of economics ended with Bork’s book in 1978, who say things in their opinions that some Supreme Court justices have, you must rely on modern economics and then cite Bork as if that’s modern economics, and who are quite ideological.

The Amex case cannot be explained as a product of a judge. The judge is trying to solve a case with reference to the facts. It’s pure ideology, in my view, wrong in about 18 different ways. The question then becomes, “How do we fix the problem?” We have a conceptually sound antitrust law. We have serious suggestive but unproven problems of competition violations by some major platforms of hugely important economic and social significance. We have judges who are not applying the law in a way that’s likely to be hospitable to sound antitrust claims.

Do we rely on the common law, the traditional evolution of the law, but in the courts, or do we look at the judiciary and say, “Well, we’re a generation away from having any optimism there?” Alternately then, do we look to Congress, either to specify some antitrust principles that take away the discretion from a course, or maybe they have sectoral regulation, not old fashioned FCC type regulation, but a special set of competition rules suitable for the platforms?

The problem with that is, well, I think this group could probably draft pretty good legislation. I’m not sure Congress can. I think we’re in a tough bind, because we can do a lot of navel gazing about the soundness of the antitrust principles, but the question of how we get from here to an operationalized and sound antitrust principles. To me, it’s a tough one.

PICKER:

Good. Maybe we’ll pick up Koren’s comment, and then go back to Sharis and Herb, and then we’ll go to Gus.

Koren WONG-ERVIN:

Thank you, Professor Hovenkamp and Sharis. Perhaps not surprisingly, I disagree with a lot. Maybe I’ll just focus on two main things to push back on for now. The first is before we radically change antitrust by overruling decades of precedent, I think we need a problem, right? The old saying, “Is this a drastic so called solution in search of a problem?” The other thing is, “What standards will be used?” Maybe I’ll start with the standards.

In Professor Hovenkamp’s submission, his written submission, he says that instead of requiring plaintiffs to prove that defendants’ conduct resulted in anti-competitive effects, there’s a standard that plaintiffs could prove power, and then there’s the efficiently suspicious conduct in need of an explanation. To me, the problem with it is I just don’t know what sufficiently suspicious means, and more importantly, how can you test for that? The benefits of the existing consumer welfare standard and the case laws we have it is not only that the consumer welfare standard is this broad standard that values what consumers are willing to pay for, but importantly, it tethers antitrust to the methodological rigors of economics in terms of theories that can be tested and rejected with empirical evidence.

Did prices go up? Did output go down? Did innovation go down? Things like that. These theories of harm that, “Oh, big companies must be doing something wrong,” the theories of harm are just starting points. They give us testable implications, and you’ve got to test that with real world evidence. The second thing is coming back to the idea of, “Do we have a problem.” In Professor Hovenkamp’s statement, and many other people have said this, that we have a monopoly or a competition problem.

They rely on a couple studies that purport to show we have higher concentration and higher markup. I just want to talk about each very briefly. We’ve heard this before on the concentration issues, that problems with the contention that these studies look at economy wide statistics that inevitably aggregate economic phenomena across geographic and product lines, and so they grossly overstate any concentration in a properly defined relevant antitrust market. But even putting that aside, let’s say we had a concentration problem.

I think, more importantly, accurate group statistics really don’t tell us anything about what we really care about, which is whether specific conduct is anti-competitive. I think there’s great risks in equating concentration with harm, and those that fear it generally overlook all the benefits like economies of scale, self financing, the ability to take and survive risks and multi-level integration. The last thing I’ll just say is on markups. To me, the primary problem with markups is that it’s well established that profit margins are not reliable evidence of market power.

But again, even if they were the studies that are relied upon, Professor Hovenkamp relies upon one by De Loecker and Eeckhout in footnote three of his paper. Professor Picker, I just wanted to give you a footnote-

PICKER:

Thank you.

WONG-ERVIN:

… in his paper. That study has a number of flaws. The study purports to show that over time, we’ve had increased markups in price since 1980. There’s a number of problems. I won’t go into them all, but just one main one is that the authors do not link increase markups with increased price. For example, a plausible and a competitively benign explanation is that the economy is shifting to more innovative and IP-oriented products and services which have higher margins.

The roadmaps that Sharis mentioned, at least the one against Google, I’ve read that one, relies a lot on markup. There’s case law and economics that say that markups alone are just not reliable indicator of market or monopoly power. To give others a chance to talk, I’ll stop there. I have a lot more to say maybe later.

PICKER:

That sounds good. Sharis and Herb, do you want to pick up those two comments before we go to Gus and Hal? Go ahead.

HOVENKAMP:

I’d like to have a couple. How about, Sharis?

POZEN:

I would love yo. I would love to.

PICKER:

Go ahead. Good. Good. Good.

POZEN:

Do you want to go? I have to say, again, I sit, and in a full disclosure, I do represent third parties in both the Facebook investigation and the Google investigation. There are varying degrees. They’re not necessarily complaining. I’ve heard what they have to say about what’s going on in the marketplace. Koren, I couldn’t disagree with you more. I think if you look at what Google’s conduct right now, Google is a great company. I use Google. Google’s a verb, right? We Google.

They’ve done a lot of great things, but I have to say as their size has increased, I mean, I have a laundry list of problems that go beyond just their profit margins. It’s their conduct that’s an issue. I think in terms of their market power, it’s indisputable. They have market power. But the question isn’t how they built their mousetrap, the question is how they use their mousetrap, and what they do in the marketplace. I think they’ve leveraged their monopoly to force advertisers to use its products and open display advertising.

I think they were strict and withhold interoperability and access to disadvantaged competitors, especially let’s look at YouTube. They subsidized certain ad tech products, and they face real competition with revenue from a monopoly ad tech products to foreclose rivals in the market. They design different types of bidding and auctions to advantage themselves and avoid competition on the merits. They become the ultimate gatekeeper. They’ve eliminated third party cookies, so only they have the data now.

There’s a real trade off here. I think on the Facebook side, it’s clear through this series of transactions that they went through, they were trying to buy potential competitors, and then sure up their monopoly. All due respect to our economist friends, that is the platform on which antitrust cases are built. There’s no question, but at the same time, I think their conduct is what we need to be looking at. I think that’s what the cases would be built on.

Joshua SOVEN:

Randy, it’s Josh. I’ll just want to jump in on that, a good point.

PICKER:

Herb?

HOVENKAMP:

Yes, thank you. Doug, I completely agree that this is a lot of ideology. I’ll just give you one example of… The Chicago School was pretty relentless against state created monopoly. Both Bork and Posner argued strenuously for narrowing of the state action exemption, for example. Bork did it in his litigation in the cantor case way back from the mid ’70s, Posner and some of his academic writing. When you see a dissent, for example, in North Carolina Dental, written by Justice Alito joined by Thomas, that’s not Chicago School of Economics speaking.

That’s not any kind of economic speaking. I think that’s just a state of mind that says, “We need to shut our eyes to an anti-competitive practice and actually a fairly blatant anti-competitive practice, which just happened to be defended by a self-serving professionally dominated state organization.” Now, on Koren’s discussion about the rule of reason, I think it’s always important to remember that the question we’re discussing here is where does the burden shift? We’re not talking about the whole case.

The question is when should the burden of proof shifts to the defendant? I think, the rule of reason has been a terrible mess for years. The real source of the mess is that the Supreme Court has required plaintiffs to show too much before the defendant is required to bear the burden of offering a justification. I think that’s the problem with the California Dental case. It was also the problem in the Amex case. In most of these cases, and certainly those that are subject to efficiency defenses, we’re talking about evidence for which the defendant is usually in a superior position.

That is the defendant knows why it acted the way it did. It’s got the information it needs to support that. As a result, we should at a fairly early stage shift the burden of proof to the defendant to provide an explanation. I think that’s one of the biggest problems confronting the rule of reason today. Thank you.

PICKER:

Good. That’s great. I think we’ll do these two at a time. Gus, you’re up. Then Hal.

Justin HURWITZ:

This is great, because Hal and I will agree about everything. I was going to start with a joke that Herb just took the wind out of that. I’m the kind of guy who brings civil procedure and administrative law to an antitrust fight, and by talking a bit about the Twombly. I want to start where Sharis started, and end where Herb ended, but do so a bit more briefly with my comments. First, the litigation risk point is really important.

I think as much as I might disagree personally with most of the litigation that would come out of this, I think we need a lot more litigation in this area. That needs to be article three litigation, not administrative adjudication before the FTC, because we need clarity. We need… Litigation produces the positive externality of precedent, and we are sorely lacking that right now in this area. More litigation, I think, is really necessary because I think in the end, it will lead to less litigation and less uncertainty for everyone operating in this environment.

That said, with it comes a great risk, which is a lot of uncertainty for the entities that would be being sued, especially by the government. I think there are very substantial due process concerns that we need to be cognizant of here. The antitrust laws are very broad, very amorphous. I think that a lot of the court’s concern in this area is about broad amorphous statutes that, as Doug said, are being created by judges who don’t necessarily know the economics, don’t know the industries, and they’re going to make bad decisions.

That’s a really alarming thing, especially given the power of the antitrust laws. I think in a very serious way, we’re trying today to square circle with the antitrust laws. Both Sharis and Herb in their letters, they start by saying, “Hey, the antitrust laws, for all they are good, we can’t use them to cure all problems of society. They’re not a cure all.” I worry with a lot of the digital economy stuff. We’re trying to address questions that are fundamentally about values and political issues that aren’t about economic issues, even though we might frame them and discuss them in antitrust law in very economic ways.

I think we want to err on relying on the courts to reject cases that will then be turned over to Congress, and Congress will say, “Okay, we’re going to fight about this in political terms, and come up with regulations and statutes, and not rely on amorphous, overbroad due process infringing antitrust law instead, especially when by and large, I think we want to be very cognizant of throwing the baby out with the bathwater.” The antitrust laws, I think, have been very successful, very good at doing very simple things very well.

We’re trying to extend them today to do different things. We really risk, I worry, throwing out all the good that they do for the economy if we bend them to accommodate other concerns. This brings me to Amex and Twombly. I’m one of those crazy people who likes AmEx, thinks that the court got to the right place. The reason for this is largely because I have trouble imagining any case not being litigated and being very difficult to lose or not very difficult to win if the standard goes the other way.

Herb’s exactly right. This is about the burden of proof. If the burden of proof goes the other way, the threshold becomes too easy in these digital market cases to get into court, where we have very amorphous legal standards, and it becomes too likely that companies will lose. The last point I would make there is in Herb’s comments, in particular, I was just jotting down notes very frequently. I worry, I wonder that we would need a antitrust civil procedure that differs from our standard rules of civil procedure to accommodate a lot of these cases.

I think generally the courts have been pushing against exceptionalism in various fields. I think that runs counter to a good civil litigation, practice and standards. I will end there, and everyone can yell at me in turn.

PICKER:

Hal will start. Go ahead.

Hal SINGER:

Yes, I’m not going to yell at you, Gus. I did agree with mostly everything you said up until the Amex point. I mean, I feel like that’s a consensus, or it seems to be a consensus in my narrow circles. We can talk about what we should do with offsetting benefits with third parties. There’s a sound argument in my mind that the court shouldn’t even consider such offsets, and so long as a plaintiff can connect the challenge conduct with harm to a given party. That should be the end of the inquiry.

You should still have efficiency defenses, but offsets to third parties arguably shouldn’t even have any role. I want to pick up on something Gus said with respect to trying to force all these competition issues into the funnel of antitrust. I think that Gus and I are in agreement there. A lot of what I see happening in this space is the best story that you could possibly tell is an innovation harm. That is if you are concentrated or focused as I am on the dual strategies of misappropriation of data by the platforms, and then typically followed up with self-referencing, the best that you can be able to argue is some future harm.

That is that independent app providers or merchants would look at this terrain, and say that the playing field is so in level, but it’s not even worth innovating in the future. That’s the concern. As Gus said, I’m going to agree with him is that it’s largely a political preference. That is we have a preference for independence, and if that’s the case, then that’s something that Congress ought to legislate, and we can look to a template barring a page from telecom. I know that Gus knows this well too, and cable which we’ve grown up in.

We’ve had this problem before. A vertically integrated platform begins to leverage its power into the content market. Does that sound familiar? Those were the cable companies, and Congress responded to this by creating a new venue outside of antitrust namely section 616 of the Cable Act to allow complaining independent networks to bring discrimination complaints against vertically integrated cable operators. You guys know these cases.

I was the testifying expert for complainants in almost all of them, Tennis V, Comcast, NFL, the Comcast.

PICKER:

How did those cases go for you?

SINGER:

Really well. Randy, as an aside. NFL and Mason both settled with Comcast giving us broad carriage before the LJ ruled. In other cases, we got to a finding of discrimination, tennis and GSM, but I digressed. With that, I wanted to call everyone’s attention to Sharis’s piece, but it’s on page six. She actually has a section called specialized legislation. I think there’s a recognition here that we can’t attack all of these problems.

We don’t have to attack every competition problem under the sun through our antitrust laws. I’ve written many, many pieces on this, but the two starting points is that we’ve gotten to a place where we need to connect the conduct to a harm, a tangible harm that can be measured by an economist. If that’s the standard, we’re not going to prevail in any kind of innovation cases. I realized that antitrust recognizes innovation harms in theory, but I think innovation harms as well as quality harms or what we call and also harms, you’re not going to find a case that turns solely on those harms.

I do commend Sharis for bringing that up. She talks about things like data portability and interoperability. Those things go to standing up a horizontal rival. I wish you would have mentioned non-discrimination, which by the way is addressed in the Stigler center peace, and public knowledge is really hammered away on that as well as I have. On Herb’s, I want to commend him. I agree with almost everything in that piece. The thrust of it was spot on.

I would like, I think, some commentary by this panel, if they would, on Herb’s very novel idea about what to do with acquisitions, these killer apps that they’re potentially meant to extinguish competition from an upstart. He suggests a broad prohibition with an exception, which the dominant platform could acquire a non-exclusive right, I believe, in the functionality. I thought that was pretty clever compromise. I’d be curious see what the group thought of that offering.

PICKER:

Sharis and Herb… Hal, is more there?

SINGER:

No, I’ve already taken up. I’ve already talked too much.

PICKER:

Sorry. That’s fine. We got two more sets, so Sharis and Herb. Then we’ll get to those.

POZEN:

Well,

SOVEN:

Yeah, ready… Go ahead, Sharis. Sorry.

POZEN:

Sorry. Do we gotta do two or Josh? What do you want?

PICKER:

No. No. No. Go ahead. Go ahead, Sharis.

POZEN:

I remember when we first started on this journey, probably two years ago, thinking about a lot of these issues more foot-forward leaning into them. There was this notion that both Gus and Hal have raised, but I thought of it like antitrusting this empty vessel, and putting all harms, whether it’s privacy, whether all these things into antitrust. I have to say I actually think the debate has progressed beyond that. That’s why I wanted to focus on old fashioned antitrust under section two, under section one that we have conduct issue now.

I realized I did focus on the roadmap that have just been published by the Omidyar Network, but I actually want to commend you to the CMA report that’s out as well. That’s not just conjecture or whatever. That’s based on an enormous amount of work that went into talking to third parties, et cetera, and the parties that issue there, Facebook and Google, got to respond. They recorded that in there. That’s an interesting one.

I was on a program yesterday that the CMA just unpackaged that, and they have some really interesting things, including, Hal, to your point, more of a digital regulatory scheme, but they don’t ignore the old fashioned antitrust conduct investigations and enforcement actions like this on Microsoft exclusive dealings, refusals to deal and incredible barriers to entry erected and just all about intent to harm competition.

SINGER:

Can I just quickly share… Sorry. Go ahead, but I’d like to respond to that if I get a chance. Go ahead.

PICKER:

Herb, go ahead.

HOVENKAMP:

Thank you. Just one thing on the burden benefit or offsetting benefits on the second side, yes, at an atmospheric level, networks produce costs on one side and benefits on another side. That was not true in the Amex case. The Amex case involved a no steering rule in which a merchant and a cardholder might have reached the bargain that would have benefited both of them by steering the customer to a different card, but the no steering rule for bad debt. As a result, every single application of the no steering rule and Amex harmed both that cardholder and the merchant.

There was harm on both sides. The only benefit accrued to the profit center, which was of course, AmEx, who owned the platform. If the court had understood that, if they had taken this apart done the kind of close transactional analysis that the situation required, they could have seen that there was harm in both sides. That certainly should have been enough to switch the burden of proof. That’s all I got to say about it.

PICKER:

Hal, do you want to say something fast?

SINGER:

15 seconds. Sharis, I want to acknowledge that there are good antitrust cases to bring against the platforms, against Amazon. You have the MFN and the tying with the fulfillment services. In Google, you have the discriminatory refusal to deal and leveraging into ad tech. There are good cases to bring, but I think that antitrust would miss the real big thing that the platforms are doing that are potentially harming competition.

That is the self-preferencing and misappropriation of data. I worry that those can’t be fit into the antitrust paradigm.

PICKER:

Good. Let’s pick up another set of two, Spencer and Josh. Josh is ready to go. Go.

SOVEN:

Great. No, thanks so much. I think Hal’s point is a really good one to start in on. We’ve been going for about 50 minutes, I think. Unless I missed it, we still haven’t heard any information about how prices are going up to consumers or how consumers are being harmed as a result of any of the conduct. That I think really gets to a lot of the frustration and issues that people are thinking about here. 95 plus percent of the cases that had been brought by the agencies correctly have focused on those two elements being present.

The reason we haven’t been able to… The reason these cases haven’t been brought, Sharis was asking what’s taking so much time, is there’s no indication out there that consumers are being harmed in a way that presents a cognizable antitrust case. Maybe the reason there aren’t any cases is there’s not any harm in the first place to remedy, and that what’s going on is the ends had been bringing the case and doing it that way. A few quick points on AmEx, one can debate the standard on Amex one way or another, but what really caused the government to lose the case was not the two-sided market issue, but the fact that they couldn’t show any harm to consumers.

If the government had been able to prove the consumers that prices had gone up to consumers by 10% as a result of the conduct, then they would have wanted to walk, and there wouldn’t have been any problem at all. That’s really the issue. Amex is not holding back good cases. If the government can prove that consumers are harmed, and the prices will go up, and that output will go down in the foreseeable future, then two-sided markets, three-sided markets, one-sided market is not going to matter. The government got-

MELAMED:

I have to interrupt. By that test, we couldn’t have won the Microsoft case.

SOVEN:

I don’t think that’s right. The Microsoft case, Doug, you were able to show there was blatantly anti-competitive conduct for which Microsoft had no pro-competitive justification that was reducing innovation. It was straightforward. It was clean. It didn’t require any balancing. Judge Ginsburg said, “Look, I see this conduct, which is clearly designed to reduce competition. I’ve asked Microsoft for what the explanation is. They gave me nothing you lose.”

That wasn’t the facts of AmEx. Amex said, “Look, this is disrupting our model. We think we’ve got a good argument.” If you can show harm to consumers, great. Knock yourself out, and then we’ll discuss it but it wasn’t there. Let me just-

HOVENKAMP:

In fact, there’s a district court, and Amex found plenty of consumer harm. They found higher prices across the board.

SOVEN:

They did not.

HOVENKAMP:

They did. They did.

SOVEN:

Go look at-

HOVENKAMP:

The second circuit ignored those fact findings. The unique thing about the Supreme Court’s decision by Thomas’s opinion is he never cites the record for anything. He just couldn’t find the record, complete-

SOVEN:

Read the trial testimony. The merchants were really equivocal on this point. They did not say they passed on higher costs to consumers. Had they been able to prove it-

POZEN:

Can I just jump in there too, Josh?

SOVEN:

Yeah.

POZEN:

It’s something I should have said I really disagree with. I would cite to the CMA report. Again, I’m just looking at the press release that I see on my desk. The report is 400 pages, but they actually cite there in terms of… They have three things they say are harmed by Google. Weak competition in search and social media leads to reduced innovation choice. Further, if the 14 billion pounds spent in the UK last year in digital advertising is higher than it would have been.

Then they did a like for search term on desktop and mobile, and they found that Google’s prices were 30% to 40% higher than Bing’s. This is an CMA report that’s public. This is an enforcement action. That’s why I’m asking why hasn’t there been enforcement actions when we do have evidence?

SOVEN:

The fact that a CMA report wrote it down doesn’t mean you can prove it in the U.S. court. That’s really the issue. If people can prove higher prices to consumers, generally, you win those cases.

POZEN:

We’ll see. We’ll see.

SOVEN:

Yeah, we will-

PICKER:

We all need to read the CMA report. That’s clearly the case. Let’s finish Josh, and then we’ll go to Spencer.

SOVEN:

Two last points, and I’ll stop. Sharis, I am confident that there are fortune 50 and fortune 100 companies that are unhappy with what digital platforms are doing. That, I suspect, the government will be able to prove. All of that evidence will come out in discovery. The problem with that is it’s just not a cognizable antitrust case, but the third party discovery after cases will be fascinating. Then finally, on this idea of micro acquisitions, look, again, the standard is clear.

If you can prove that a transaction or so called killer transaction killer acquisitions, if you can prove that an acquisition will reduce competition in the foreseeable future, the government’s going to win. The reason those cases weren’t brought in the past including some decisions I think you correctly made when you were an AG is that evidence wasn’t there. The fact that you can look back 10 years after the fact and tell a story that you think the world might have been better if that didn’t happen, that doesn’t mean you have a Section VII violation.

PICKER:

We’re going to go to Spencer, and then Hiba, and then Alexander. We’ll let Sharis and Herb wrap up. I suspect we’ll be out of time given the late start. Spencer, Hiba, Alexander.

WONG-ERVIN:

Randy, if we have time, I have a couple points I’d just like to for balance’s sake.

PICKER:

Let’s see where we are. Go ahead. I hear it. I hear it.

Spencer SMITH:

Thanks, Randy. I’ll try to make it quick, because I know we’re running a little on time. I’m glad that things have started to get a little bit spicy, and so I thank Josh for that. I would add that I disagree with Josh about AmEx. I think it was erroneous. I also think that when it comes to digital marketplaces, a lot of the harms we might see may not be price harms to consumers like me. It may be innovation harms or maybe price or output harms to individuals or entities like advertisers.

I want to come back briefly, if I may, to this topic of how judges and courts may have gotten to where we are today. Sharis has started off by talking about this idea of litigation risk. I think she was talking about risk of bad decisions and bad precedent. Gus has a different view of what litigation risk is out there, maybe a risk to these firms and relatedly to consumers who rely on the firms. I guess, I’m curious to know the group’s opinion about some possible reforms beyond just identifying the problem, some ideas that have been put out on the table.

I’m curious to know what Sharis, Doug, others who have spoken on this, Herb, think about include things like rethinking the role of experts. Herb writes in his book about how each side will have dueling experts, and then the judge throws up his or her hands, and makes credibility determinations or does maybe the worst thing in the circumstance which is send the factual question to a jury of lay people. Judge Posner had a proposal about having a third expert chosen from a group of experts agreed upon by both parties.

I’m curious what people think about a specialized tribunal. Obviously, we have one, the FTC, but we could think about a specialized article three courts or the like. With regard to risk and AmEx, I’m not sure risk is even the right word. There’s not much uncertainty about a possible litigation strategy to overturn AmEx, unless justice Cavanaugh is going to vote differently than his predecessor, Justice Kennedy. I think it’s going to stay on the books unless there’s some legislative solution.

I see judges and courts as a big part of where we are today. I’m curious what others think about methods for reform.

PICKER:

Great. Thank you. Good. Hiba, you’re up next.

Hiba HAFIZ:

I just have some quick points. It’s just responding to everyone tonight. Hopefully my… The first is something that I think that Herb mentioned in his notes for the committee where it was really about market definition and something that Koren mentioned as well, and relating to Hal’s point about potential offsets. I think one tricky thing to keep in mind about offsets and third parties is really this question of these acquisitions or these killer acquisitions being involved in complimentary inputs, so it becomes very difficult to figure out where we’re considering consumer harms and where we’re actually considering offsets for third parties, and that they may be actually quite related.

The second point was really just about maybe more explicitly thinking through how to parse Section VII versus Section II enforcement in the context of the digital platforms. This is something that obviously Scott Hemphill and Tim Wu were writing about. It raised some controversy around whether or not these are things that should be pursued under Section VII versus Section II, and the potential for the really compounding effects of the lack of clarity on Section II with respect to the rule of reason.

That split in the lower courts with respect to pretext and intent evidence and so on, and whether or not that can be an avenue for really substituting for more aggressive enforcement under Section VII. I’d love to hear folks’ thoughts about that. Then third is this can… Nobody’s brought this up, but I’m curious what people’s thoughts might be about given the kind of expertise points and then the concerns about the judiciary that Doug raised about Section V, FTC Act, rulemaking.

It’s not something that folks really talked about, but I’m really curious to hear thoughts about rulemaking and digital platforms duties to deal and anti-discrimination duties as a way of avoiding some of the concerns that folks have about expertise of the courts. Then finally, I think, with respect to Hal, and also just responding to that, about the innovation and quality harms, I think that there are real ways of integrating non IO-based economic analysis to really try and delineate what those harms might be, whether that’s in the context of thinking through bargaining harms or in the context of behavioral issues.

I know that’s the third rail, but I think that it’s worth being part of the conversation that we’re having.

PICKER:

Good. Thank you. Alexander.

Alexandre CORDEIRO MACEDO:

I’m so glad I’m here to hear you and learn everything that you guys are saying. I think that my contribution here should be about how this thing is working in Brazil. I’m not a specialist in American antitrust law, but I think that I have some cases very similar and will it in the Joshua speech as well about how to show the harm in consumers. You talked about a little bit of Google case in Brazil. Actually, we closed the case in Brazil, and I want to just tell you how.

One of the things that I was reading the papers from Sharis and Hovemkamp was about… First of all, our law, I mean, is ready to work with the digital economy. Our twos also is adequate, and so our institution is also adequate. I will focus just in the second point because we don’t have time to do all of those. Listen, a good idea to start to talk about this is getting a real case, so the Google shopping case in brazil. We’re not going to talk about traditional analysis. The first step is to identify the relevant market.

In the Google shopping case, we work on claims that general search comparison shopping service in marketplaces with all being the same broader relevant market. If this was the case, Google would not have a dominant position, and we would not have only lateral conduct case based on abuse of dominance. If we restricted the relevant market by identifying these three market as positively vertically integrated, we would probably have a case of uncompetitive conduct.

At the time, we were dealing with mood side platforms, with consumers on one side, advertisers on the other side, not to mention the very searchable websites as well. How to take into account this mood, sadness in the definition of relevant market? Even this challenge, one could ask should they abandon the relevant market definition; deem it inadequate? So guidance view is that it’s not the case. Listen, this is important. To define relevant market is still one important step to analysis of merger or unilateral conduct, but it does not have to be a fetish.

When I say to define, it doesn’t mean necessarily to have one perfect definition. What we did in the Google case was to define different scenarios of relevant markets looking to every side of the platform and the influences that each side have in another. After that, we took the most conservative approach. We consider the worst scenario from competition point of view in order to be in a safe harbor to make the best decision we could. Give the scenario. We also analyze the data under the rule of reason, and the burden of proof’s always from the administrative for the authority.

The authority has to prove the rule of threeism. What we did was we’re able to identify evidence for anti-competitive conduct. Instead, we verified improvement in Google’s shopping surface. The question was did companies exit the market? Yes, some did, but our goal is to protect competition, not competitors. Because of that, the case was dismissed. After seven years of investigation, we couldn’t find any harm from the consumers. We couldn’t find increase in price.

We couldn’t find less quality and another thing that could harm the consumers. What I’m saying is, and what we did in this case and Uber case in Brazil, and iFood case and other platform case in Brazil, was to use the same basis, the same analysis that we used to do with some adaptation. Our law is very general and broad, so we can use the law and our twos, and digital market has to have some adaptations like this definition of relevant market that we have to do it but not be pointing that this is exactly relevant market. We have to look around.

One thing that is very important also to say in Brazil that we’re talking about that the burden of proof is different, those three steps to rule threeism and United States, it’s a little bit different in Brazil. The antitrust authority has to prove everything. This is also hard for us. The question was, “What is the correct time to invert and ask to defend themselves?” I found my conviction awry. We start to talk with the body, and asking them to, “Okay, give me some evidence.”

We lowered the symmetry of information when we have a lot of evidence, and I say, “Okay, now I think that I have a case.” What I do is I invert the order and ask the defendant to defend themselves, and they have the whole due process to start to presenting new proves and go the case. The last thing just to end, the procedure is very different in Brazil. Judge’s decision is the last decision so we can execute the decision. This can go to the judiciary but in a very strict limit. That’s why the importance of the administrative procedures in Brazil. I will stay here.

PICKER:

We’ve got maybe two minutes to finish. We should give Sharis and Herb a chance to wrap up quickly. Oh, baby, she’s going. Go ahead.

POZEN:

No, maybe two seconds on… Look, this is a great debate and very helpful. I think that we will see how things unfold. I don’t think Joshua can give the CMA report the back of the hand. It was a lot of hours and time, both economists and lawyer time. I do think that there’s a lot of interesting formation. It’s not just that they wrote it down. They studied it, so we’ll see. I think some of the other issues that we talked about today, we’ll see how they play out.

I still focus on predatory intent, because I still ground things in the Microsoft case. I don’t have access to those documents, but the governments do, so that will be some of the most interesting telling information, I think, that we discern, if we do see predatory intent by either Facebook or Google in executing on their conduct.

SOVEN:

Randy, just 10 seconds on that. I’m not giving the report the back of the hand. I’m simply saying that what drives enforcement decisions in the U.S. is what evidence of consumer harm you can present to an Article III judge, and have that debated and worked out in the adversarial system.

PICKER:

Josh, just to get this on the table, do you mean ties to Google or anyone in these markets?

SOVEN:

I do do work for Google.

PICKER:

That’s fine. No, that’s not a problem. We should work through people. I just want to make sure we get those disclosures now. If that’s the case, there’s anyone else who-

SOVEN:

Absolutely.

PICKER:

No, that’s fine. Herb, did you want to say something?

HOVENKAMP:

Just on killer acquisitions, I think a properly defined killer acquisition should be treated as a cartel rather than as a merger. That is to say an acquisition where the acquisition plan includes shut down of the acquired firm’s assets. That’s simply nothing more than a cartel agreement in which shut down of a plant is part of the plan. Now, there are acquisitions that end up after the fact resulting in a shutdown, because things don’t happen the way they are intended.

In a true killer acquisition, there are no offsetting efficiencies. There’s no reason to be tolerant of the merger.

PICKER:

Wow. That was super lively. That’s good. I appreciate everyone’s efforts there. I wasn’t quite sure if we were going to fail 75, but we could do more. We could do another 75. I know everyone’s got more to say. I certainly do, but we’re not going to do that. Thank you very much. I really appreciate that. Thanks for putting up with the technical difficulties at the start. We’re going to do more of these. If you’re interested, send me an email. We’ll do follow ups afterwards. Thank you very much.