Antitrust Liability Research Articles

Antitrust liability, corporate groups and M&A transactions: a tale of undertakings, economic continuity and effectiveness of EU competition law

ABSTRACT Who should be liable for competition law infringements? While the answer should be, in theory, a simple application of the personal liability principle – the infringer pays – the corporate changes that an infringer may undergo in the years necessary to come to an imputation of the infringement make the matter, in practice, significantly more complex. In this article, we first investigate the core of the antitrust liability theories, all to be traced back to the fundamental concept of undertaking, which constitutes their indispensable theoretical background. Then, we will try to provide an answer to the question, by analyzing, on the basis of the case-law, the multifaceted and colourful applications of antitrust liability theories to M&A transactions involving antitrust infringers. Lastly, we lay out practical suggestions which may be useful for companies to minimize the risks of being left with antitrust liability as a result of corporate transactions.

ANTITRUST AND INEQUALITY

ANTITRUST AND INEQUALITY

The Issue of Consumer Welfare in the Government Complaints against Google & Facebook

Although the Consumer Welfare doctrine has served as an important feature of antitrust liability since the 1980s, the Department of Justice (DOJ) and Federal Trade Commission (FTC) have downplayed this factor in their respective Google and amended Facebook complaints. Each complaint makes a general reference to this issue, but with few detailed factual allegations. A complicating factor is that the defendants have gained dominant market positions by providing valuable digital services at little or no direct charge to consumers. In this paper, we emphasize that the services offered by the two platforms embody quality as well as price dimensions, both of which can affect consumers positively. Indeed, quality product dimensions may become even more important to consumers in a zero price environment. We construct a simple economic model using privacy as a significant quality attribute through which these issues can be explored, and then draw some appropriate policy conclusions.

Blockchain governance: The missing piece in the competition puzzle

Antitrust law deals with economic matters as if they were all industrial processes, that is, processes through which companies transform inputs into outputs. In this sense, we could say that antitrust law is still a Nineteenth Century law, even when it comes to platforms that transform digital data into services.For this reason, when we look at blockchains through the lenses of antitrust law, they are either framed as the result of an industrial process (the blockchain as an output) or as a means that allows the development of an industrial process (the blockchain as a tool). However, these two pieces do not complete the puzzle: they do not say much about the competitive impact of blockchains. Studying the operating mechanisms of blockchains and, in particular, their governance, one realizes that the puzzle must acquire a new piece: the information on who controls the blockchain. This piece of information reveals that even dominant blockchains, which are still nowhere to be seen, could be harmless if truly devoid of any central authority and that even strategic exchanges of information via permissioned blockchains should not trigger any antitrust liability, if blockchains’ administrators managed to allow the exchange only among non-competing participants.

Loyalty Rebates under EU Competition and US Antitrust Law

The present chapter investigates the antitrust rules applicable to loyalty or fidelity rebate schemes under EU competition and US antitrust law. It finds that antitrust liability for a dominant company will more readily be established in the EU, where the applicability of economics-based tests is still being navigated. In the US, rebates by a monopoly player will usually be found to be anti-competitive where they constitute predatory pricing, although they might also run into antitrust liability where they constitute exclusive dealing arrangements. This divergence can be explained by the different ideological underpinnings in the two jurisdictions. Overall, however, the (case) law on loyalty rebates is still in a state of flux in both jurisdictions. In recent years, both jurisdictions have gradually moved to a little more convergence in their treatment of exclusivity rebates. At this point, however, both the US Supreme Court and the European Court of Justice will need to weigh in on the future of the antitrust assessment of loyalty-inducing rebates.

Antitrust Liability for False Advertising: A Response to Carrier & Tushnet

Antitrust Liability for False Advertising: A Response to Carrier & Tushnet

INTEROPERABILITY AS A COMPETITION REMEDY FOR DIGITAL NETWORKS

In this article we argue addressing entry barriers created by network effects is critical to remedying a monopolization violation in a social network market (e.g. Facebook). For a social network, interoperability is likely a necessary, but not necessarily a sufficient, condition for an effective remedy. Mandatory interoperability based on robust and effective rules could overcome the network effects that protect the incumbent from entry, maximizing the potential for new entrants to enter at minimal cost, compete in the market, and take share from the incumbent. This remedy could be ordered in addition to other relief such as a divestiture, and indeed could be complementary to it, or stand on its own. In today’s internet-based network markets, interoperability carries no incremental costs such as dedicated wires and machines that were true of the telecom interoperability of past decades. Its main cost is the establishment of an open standard to exchange commonly used functionalities (e.g. text, images) of social networks. If this remedy were ordered by a court after a finding of antitrust liability, the standard should be overseen by an agency to ensure it serves to protect competition, lower entry barriers, and erode market power. Entrants who wish to interoperate with the incumbent could demonstrate adherence to privacy and security standards and receive royalty-free licenses.

Making Sense of Monopolization: Antitrust and the Digital Economy

For more than a century, courts and scholars have searched without success for a general definition of monopolization. Some proposals rely on elusive ciphers like “predatory conduct” or “competition on the merits”; others depend on nebulous or impractical balancing tests; others make antitrust liability implausible except in the most extreme cases. Our failure to give a clear and principled explanation of what monopolists may not do has daunted enforcers, confounded courts, encouraged bad behavior by powerful firms, and undermined public faith in our antitrust system. In an age of digital dominance, the mounting costs of confusion have fueled calls to replace, or thoroughly reshape, the Sherman Antitrust Act. This Article outlines a course correction, drawing on monopolization’s historical, theoretical, and doctrinal foundations to improve both the vigor and rigor of the law. We can make sense of monopolization by understanding it as an effort to do three separate things: guard against contribution to the dangers of monopoly; protect against a wrong called “exclusion”; and respect a sphere of competitive privilege. This view implies a framework for monopolization cases—which I call the “dangerous exclusion” approach—to replace the conclusory labels of existing law; unify its sprawling array of micro-rules; correct widespread misunderstandings (including mistaken claims that a plaintiff must show actual effects on price, output, or other competitive outcomes); and help navigate real problems. The dangerous-exclusion framework offers a principled and workable middle way between conservative approaches that are unduly preoccupied with the risk of “false positive” interventions and radical proposals that threaten to harm consumers. As a qualitative, court-centric approach, it contrasts sharply with both left-wing calls to entrust the antitrust project to rulemakers and right-wing proposals to delegate it to econometricians. But our imperfect adjudicative tradition is up to the task, in digital markets and beyond. There is plenty of life in the Sherman Act yet.

The Economic Succession Doctrine in Private Enforcement of EU Competition Law: 'Nothing Extraordinary' After Skanska Industrial?

The article analyses the recent judgment of the Court of Justice of the European Union (CJEU) in Skanska Industrial. In its preliminary ruling, the CJEU recognised for the first time the so-called “economic succession doctrine” in damage claims concerning a breach of EU competition rules. In the judgment, the CJEU relied on its well-established case law. From this point of view, the ruling is “nothing extraordinary”. Nevertheless, the judgment represents an important milestone that contributes to the development of damage claims in Europe. The article first discusses the origins of the economic succession doctrine, which derives from the broad concept of “undertaking” developed by the CJEU case law and the so-called “single economic entity” doctrine. Afterwards, the article discusses the Skanska Industrial case, in particular by comparing the opinion of Advocate General (AG) Wahl with the CJEU ruling in the case. The article concludes by discussing the potential consequences of the CJEU ruling in Skanska Industrial on private enforcement of EU competition law, as well as the questions that remain open after the judgment. After Skanska Industrial, it remains unclear how the disclosure of evidence will take place in practice in the context of a damage claim following a corporate restructuring. Secondly, the limits of the economic succession doctrine remain unclear: it is unclear when a corporate restructuring indeed leads to the establishment of a “new” undertaking, free from the antitrust liability acquired by its predecessor. Finally, it remains unclear whether Skanska Industrial case law could also be extended to other remedies besides damage claims, such as actions requesting a court injunction, compensation for unjust enrichment, or a declaration that a contract is null and void. The article argues that in the coming years the CJEU will probably be called to clarify SkanskaIndustrial case law in order to answer these remaining questions.

Justice Department's New Position on Patents, Standard Setting, and Injunctions

A deep split in American innovation policy has arisen between new economy and old economy innovation. In a recent policy statement, the Antitrust Division of the Justice Department takes a position that tilts more toward the old economy. Its December, 2019, policy statement on remedies for Standard Essential Patents issued jointly with the U.S. Patent and Trademark Office and the National Institute of Standards and Technology reflects this movement. The policy statement as a whole contains two noteworthy problems: one is a glaring omission, and the other is a mischaracterization of the scope of antitrust liability. Both positions are strongly relevant to the pending Qualcomm litigation in the Ninth Circuit. First, the Statement say nothing about the conduct of patent holders. The Patent Act authorizes patent injunctions “in accordance with the principles of equity.” Under the equitable principle of “unclean hands,” a patentee who is in serious default of its own legal obligations cannot obtain an injunction, at least not until its own bad conduct has been terminated. Second, the Statement’s declaration that FRAND disputes do not raise antitrust issues is false. In the first instance FRAND disputes are about contracts. But if a firm’s anticompetitive use of FRAND-encumbered patents meets the power and conduct requirements of the antitrust laws it can be unlawful under them as well. Guidelines from the government are very useful when they state the law or an agency’s own enforcement position, or when they clarify ambiguities. But they are not legislation. They do not bind courts, other government agencies, or private plaintiffs, particularly not when they conflict with clearly established law.

Bridging the Coasean Divide: The Need for a Shared Economic Lexicon for Antitrust & Worker Protection Law

Uber, the most prolific of a new breed of transportation network companies, has been the target of two distinct strands of litigation in recent years that get at a question at the heart of the company’s business model. On the one hand, drivers have sued Uber for intentionally misclassifying them as contractors to dodge employer obligations. On the other, consumers have taken Uber to court for fixing the prices of millions of independent competitors, in clear violation of antitrust law. Uber’s situation seems legally untenable; either drivers are independent businesspeople and Uber is running a massive price-fixing conspiracy, or drivers are employees and the company owes millions in worker benefits and payroll taxes. However, antitrust and labor law have both evolved over the last half-century to be far more permissive of innovative (some would say exploitative) business models. This leaves a regulatory void in which companies like Uber get all the benefits of a coordinated, top-down command structure without incurring either antitrust liability or employer obligations. This void poses a competition problem and a labor problem. Workers that have no real power to negotiate their rates or make market-based decisions are left without the protections of labor and employment law. This note argues for a common set of definitions across antitrust and labor law to close the regulatory gap. These definitions should be nuanced, and might include intermediate categories like “dependent contractors.” These definitions should be guided by evidence of genuine ability or inability to make market decisions, particularly whether workers can set their own prices. But most importantly, they should be uniformly recognized by labor and antitrust courts. This will allow for innovative companies like Uber to choose. They can relinquish economic decision-making to their workers and maintain their low-commitment technology company status, or have greater coordination rights vis-a-vis their workforce and accept the employer obligations that come with them.

Section 2 Mangled: FTC v Qualcomm on the Duty to Deal, Price Squeezes, and Exclusive Dealing

Abstract Judge Koh handed down a sweeping opinion in May 2019 condemning as antitrust violations many of Qualcomm’s licensing practices related to its patented chips and standard-essential technology used in mobile devices. The district court opinion significantly expands the scope of liability for refusals to deal and for non-predatory pricing, further eroding the longstanding symmetrical approach to antitrust enforcement regardless of the kind of property involved. We find three glaring errors in the district court opinion. First, the court expands the exception to the general rule permitting refusals to deal, as laid out in Aspen Skiing, well beyond the outer boundary of Section 2 by inappropriately inferring a prior course of dealing and erroneously finding a willingness to sacrifice profits. Secondly, the district court accepted a price squeeze theory—characterized by the FTC as a ‘tax’ on OEMs transacting with Qualcomm’s rivals—directly contrary to the Supreme Court’s holding in linkLine. Thirdly, the court erroneously concluded that Qualcomm’s exclusive dealing arrangements with Apple violate the Sherman Act, despite a glaring failure by the FTC to prove substantial foreclosure, contrary to modern antitrust precedent and economic theory. The district court’s inappropriate extension of antitrust liability in three separate areas of well-settled antitrust doctrine is remarkable and threatens to upend important precedent that has successfully guided business conduct for many years. Further, the remedy transforms the role of antitrust courts from adjudicators to central planners, a role for which the Trinko Court expressly stated they are ill suited. The decision invites plaintiffs to use the Sherman Act to reach conduct that has been generally shielded from antitrust liability. That invitation is ill advised and should be rejected by the Ninth Circuit, and if necessary, the Supreme Court.

Section 2 Mangled: FTC v. Qualcomm on the Duty to Deal, Price Squeezes, and Exclusive Dealing

Judge Koh handed down a sweeping opinion in May 2019 condemning as antitrust violations many of Qualcomm’s business practices related to the royalty rates it charged to license its SEPs. The district court opinion significantly expands the scope of liability for refusals to deal and for non-predatory pricing behavior, further eroding the longstanding symmetrical approach to antitrust enforcement regardless of the kind of property involved. We find three glaring errors in the district court opinion. First, the court expands the exception to the general rule permitting refusals to deal, as laid out in Aspen Skiing, well beyond the outer boundary of Section 2 by applying it to contracts negotiated by Qualcomm over 20 years ago and by inferring the company was willing to sacrifice profits even in the face of evidence that the change in dealing was implemented to increase short-term profits. Second, the district court accepted a price squeeze theory—characterized by the FTC as a “tax” on OEMs transacting with Qualcomm’s rivals—directly contrary to the Supreme Court’s holding in linkLine. Third, the court erroneously concluded that Qualcomm’s exclusive dealing arrangements with Apple violate the Sherman Act, despite a glaring failure by the FTC to prove substantial foreclosure, contrary to modern antitrust precedent and economic theory, both of which make crystal clear that proof of substantial foreclosure is necessary to showing an anticompetitive effect from exclusive dealing. The district court’s inappropriate extension of antitrust liability in three separate areas of well-settled antitrust doctrine is remarkable and threatens to upend important precedent that has successfully guided business conduct for years. Further, the remedy—aside from putting the nation’s security at risk and potentially undermining U.S. leadership in 5G technology and standard-setting—transforms the role of antitrust courts from adjudicators to central planners, a role for which the Trinko Court expressly stated they are ill suited. The decision invites plaintiffs to use the Sherman Act to reach conduct that has been generally shielded from antitrust liability. That invitation is ill advised and should be rejected by the Ninth Circuit, and if necessary, the Supreme Court.

Antitrust, the Gig Economy, and Labor Market Power

In academic and public debate about the increasing imbalance of power between employers and workers, the role of antitrust policy and enforcement has heretofore gotten little attention. This paper shows that where there was once a sharp border — the border of the firm — where labor law ended and antitrust began, there is now a considerable legal gray area. Business models that rely on the control and exploitation of workers, independent contractors, and small businesses are increasingly immune from antitrust liability, without the associated responsibilities on the part of employers traditionally due to workers under labor law. At the same time, antitrust has been increasingly active preventing those workers, independent contractors, and small businesses from coordinating with one another against the interests of powerful corporations. Antitrust’s treatment of gig economy firms like Uber exemplifies its tendency to widen the options available to employers and “lead firms” and constrict them for workers. This paper concludes with a discussion of antitrust policy alternatives to rectify the perversion of antitrust’s original aim: to de-concentrate private power.

The Legal Nature of FRAND Under U.S. Law

The legal nature of FRAND in the United States has evolved into a complex, integrated system that includes aspects of patent law, contract law, and antitrust law. A SEP owner who fails to commit to FRAND licensing may potentially incur antitrust liability if a SEP is intentionally concealed during the standard setting process. On the other hand, by making a FRAND declaration, a SEP owner both accepts limits on remedies for infringement of that patent and enters a binding contract in which potential licensees of the patent are third-party beneficiaries entitled to enforce the FRAND commitment. Antitrust law further encourages a SEP owner to honor its FRAND commitment, U.S. antitrust laws may be violated by a false FRAND declaration. Of these FRAND-related claims, contract issues are poised to be most important because they often resolve other claims related to SEPs. Indeed, U.S. courts in FRAND contract cases have both determined global FRAND rates and enjoined SEP owners from pursuing related patent infringement litigation both inside of and outside of the United States. SEP owners and potential licensees therefore may find themselves haled into U.S. courts to resolve global FRAND disputes, and the legal effect of FRAND under U.S. law thus extends well beyond the borders of the United States.

Antitrust and Balance of Interests in Standards Development – Lessons from <i>NSS Labs. v. Symantec</i>

The recent decision of the District Court of the Northern District of California, in NSS Labs. v. Symantec sheds light on the requirement that Standard Development Organizations (SDO) achieve a balance of interests in their procedures. Whilst the court ultimately did not rule on this point, the U.S. Department of Justice (DOJ) intervened in the case to insist – correctly in our view – that SDOs must meet that requirement in order to benefit from protection against antitrust liability under the Standard Development Organization Advancement Act (SDOAA). We argue that a balance of interests in standardization procedures is essential not only under the SDOAA, but also for the application of antitrust to SDOs more generally. Furthermore, this requirement is distinct from and additional to other antitrust considerations, such as absence of dominance, collusion, or manipulation of standardization processes. Nevertheless, a balanced membership composition is not the only way for SDOs to achieve such a balance of interests.

Antitrust Liability of Public Entities Acting as Awarding Powers in Public Procurement. The Hesitant Spanish Case

Antitrust Liability of Public Entities Acting as Awarding Powers in Public Procurement. The Hesitant Spanish Case

Non-Discriminatory Royalties for Standard Essential Patents: Setting the Boundaries

Technical standards often implicate patented technologies. This poses a risk of patent hold-up, whereby a standard essential patent (‘SEP’) holder opportunistically exploits its market power conferred by standardization and demands excessive and possibly differential royalties from implementers of the standard. Commitments to license on fair, reasonable, and non-discriminatory (‘F/RAND’) terms imposed on SEP holders are intended to avoid that risk. Nevertheless, the practical implications of the non-discrimination (‘ND’) prong of F/RAND have become a subject of debate and litigation as a matter of contract and antitrust law. This paper seeks to answer the question: ‘To what extent is a F/RAND-committed SEP holder legally allowed to charge differential royalties to different licensees for the patented technology from the U.S. and the EU perspectives?’ It explores the meaning of the ND prong by examining IEEE, (= Institute of Electrical and Electronics Engineers) JEDEC, (= Joint Electron Device Engineering Council) and ETSI’s (European Telecommunications Standards Institute) bylaws, inspecting U.S. and EU antitrust norms, analyzing case law of the U.S. and European courts, and reviewing legal and economic arguments in the academic literature. According to the dominant perception, SEP holders are obliged to license to similarly situated licensees on similar terms. Based on the interpretations in case law and literature, it is possible for a SEP holder to charge differential royalties legally to licensees manufacturing dissimilar devices incorporating the technology, and even to licensees manufacturing similar devices when the needed transactions differ. Discrimination in royalties may also trigger antitrust liability when it is capable of harming competition, although the threshold is significantly lower in EU law than in U.S. law.

An Antitrust Analysis of NCAA Amateurism as an Unlawful Tying Restraint: Market Power, Surplus Extraction, and Foreclosure

Economists have long recognized the National Collegiate Athletic Association (NCAA) as a monopsonistic cartel that restrains athlete labor compensation below competitive market levels. However, an additional restraint has been heretofore ignored. This article argues that NCAA justifies the restraint on athlete compensation through an anticompetitive tying restraint between two distinct products: intercollegiate athletic participation and post-secondary academic education. Contrary to the unitary “college education” market definition used in the O’Bannon v. NCAA case and to which parties stipulated in subsequent litigation, this article presents evidence of separate relevant markets for these goods. The NCAA Division I cartel leverages its market power in the intercollegiate athletics market, particularly through dominant autonomy “Power-5” conference members, to enhance market power in the tying market, extract consumer surplus from both athletes and the general student body and foreclose competition in the tied market. The existence of separate markets, market power in the tying market, and non-trivial foreclosure sales in the tied education market confirm that NCAA’s model of “amateurism” meets the Supreme Court’s three-pronged per se test for unlawful tying. Further, even in the absence of foreclosure share, the tying arrangement enhances dominant schools’ market power in athletics and achieves surplus extraction by harming competition, which should warrant the imposition of antitrust liability. This article presents an analysis of relevant markets and discusses relevant economic arguments raised by economic experts in the O’Bannon and NCAA Grant-in-Aid litigation, along with a review of the relevant academic literature and legal precedent.

Brief of Amicus Curiae Professor Samuel Estreicher in Support of Defendants-Appellees in Chamber of Commerce of United States v. City of Seattle, No. 17-35640 (9th Circuit)

Companies like Uber and Lyft contend that, because drivers are independent contractors and not employees under the U.S.'s various labor and employment laws, any attempt to form unions or bargain collectively for higher wages violates antitrust laws. Until now, that assumption has been widely shared -- but it's based on a failure to understand why concerted activity by workers is protected against antitrust liability. Labor’s antitrust shield was established by the 1914 Clayton Act, in which Congress determined that “the labor of a human being is not an article in commerce.” Conventionally, only workers defined as “employees” are viewed as having the right to organize without violating antitrust laws. Individuals are considered employees only if their boss can control when and how they do their work – what is called the common law’s “right to control” test. Under this view, people who provide their products or services directly to the public are prohibited from banding together with peers to try to raise wages and improve working conditions. For all intents and purposes, these independent contractors are considered business owners. They can form associations to share information and lobby for their interests -- like the American Bar Association or the so-called Freelancers Union -- but cannot form an organization that insists on collective bargaining. Allowing to join together with competitors to fix prices or carve up markets, the argument goes, represents a combination against the welfare of consumers. A Seattle ordinance, passed in 2015, would protect drivers from being fired for engaging in joint action. Given the prevailing “right to control” test, Uber and Lyft drivers may not be protected by all employment laws. But at the very least, they are entitled to engage in collective action without risk of antitrust liability. This is because of the Clayton Act, which preceded by two decades the affirmative legislation of the 1930s. In 1941, the Supreme Court confirmed that the Clayton Act, coupled with a latter statute broadening the scope of a protected “labor dispute,” established the right of workers to organize in their own interests free of civil and criminal liability under the antitrust laws. The antitrust exemption applies to workers who sell only their services, without any significant capital investment. Individuals who are principally engaged in selling goods are not covered by the exemption. Neither are those whose services involve investments in an office space and equipment, hiring staff, and advertising themselves as a business. The only investment that Uber and Lyft drivers make to their businesses is to supply their own vehicles. These drivers are “laborers” or “workers” under the Clayton Act exemption from the antitrust laws. Seattle’s involvement in setting a framework for collective bargaining and protection from retaliation does not alter the availability of the exemption for the drivers in seeking to improve their collective situation.