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U.S. Supreme Court Prevents Copyright Owners from Controlling Functional Elements of Software APIs; Cites and Follows Position Advocated in AAI Amicus Brief (Google v. Oracle)

In a high-stakes copyright case, the U.S. Supreme Court, by a 6-2 majority, has held that the reimplementation of copyrighted software APIs to achieve interoperability is a “fair use” as a matter of law, following the position advocated in AAI’s amicus brief.

Oracle and Google have been engaged in a long-running dispute over whether certain aspects of Google’s Android operating system infringe Oracle’s copyrights.  In developing Android, Google copied some of the “declarations” used in “application programming interfaces,” or API packages, from Java SE, a platform built on the Java open source programming language developed for desktop computers by Sun Microsystems, which was acquired by Oracle in 2010.

API packages are shortcuts that allow computer programmers to build basic functions into their software programs without having to write new code from scratch.  The declarations specify the name of the function (or “method”), the inputs used, and the type of output that will be returned.  Google copied the declarations from 37 out of Java SE’s 166 API packages but developed its own “implementing code” for each of the API packages.

Initially, a jury found that Google had infringed Oracle’s copyrights, but the district court set aside the verdict upon determining that the API declarations were not copyrightable as a matter of law because they constituted an unprotectable “method of operation” under section 102(b) of the Copyright Act.  On appeal, the Federal Circuit reversed and remanded for a determination of Google’s fair-use defense.  After a jury found Google’s copying was fair use, Oracle appealed again. The Federal Circuit reversed again, ruling that Google had failed to establish fair use as a matter of law.  Google successfully petitioned for certiorari in 2019, and, after a postponement, the case was argued in the fall of 2020.

AAI’s amicus brief argued that the Federal Circuit’s holdings threatened to slow innovation and competition in software-dependent markets, which are pervasive in the U.S. economy. Copyright on largely functional elements of software that become an industry standard gives a copyright holder anticompetitive power to thwart or tax innovative developments that build upon the elements.  The overprotection of software interfaces is particularly anticompetitive because it tends to prevent new entrants from challenging dominant incumbent platforms protected by network effects. It also allows a copyright owner to misappropriate for itself investments by users and developers in learning the elements.

The brief also argued that the Federal Circuit gave short shrift to copyright law’s core competition safeguards, including Section 102(b), the “merger” doctrine, and fair use. The court erred by failing to account for interoperability and compatibility considerations in all three phases of its analysis, and it gutted the fair-use doctrine as applied to software by narrowly construing the transformativeness element of fair-use to exclude utilitarian transformations that do not change the expressive content or message of the original work.  The brief argued that this construction of transformativeness in the context of computer software is perverse. While the expressive components of software may be protectable under copyright law, software’s primary benefit is functional and utilitarian in nature, and software interfaces are copied because of their functional, not expressive, value.

Justice Breyer’s opinion for the Court, joined by Justices Roberts, Sotomayor, Kagan, Gorsuch, and Kavanaugh, did not reach the Section 102(b) and merger issues because it decided the case on fair-use grounds.  Applying the four fair-use factors set forth in the Copyright Act, the Court cited and quoted from AAI’s amicus brief and emphasized several points that AAI emphasized, including: (1) that computer programs differ from other copyrightable works because of their inherently functional nature, (2) that the value of APIs is derived primarily from the investment of third-party computer programmers in learning the Java language (and not from the APIs’ expressive or creative value), (3) that a fair use need not change the expressive content or message of the original work to be ‘transformative,’ (4) that compatibility and interoperability goals can serve a legitimate, transformative purpose, and (5) that the risk of harm to the public from enforcing copyright protections should factor into fair-use analysis.

The AAI brief was written by AAI Vice President of Legal Advocacy Randy Stutz.  AAI Advisory Board Member Shubha Ghosh, who is the Crandall Melvin Professor of Law and Director of the Syracuse Intellectual Property Law Institute at Syracuse University College of Law, Hilliard & Shadowen Partner Rick Brunell, and former AAI Research Fellow Taryn Smith, assisted in drafting and preparing AAI’s previous briefs in this case.  AAI’s previous Federal Circuit briefs are available here and here, and its brief in support of certiorari is available here.

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AAI Urges FCC to Deny Verizon’s Proposed Acquisition of Tracfone: Warns of “Big 3” Oligopoly in Pre-paid Wireless and Harm to Vulnerable Consumers

The American Antitrust Institute (AAI) submitted Reply Comments on April 2, 2021 in the Federal Commissions Commission proceeding regarding the Proposed Transfer of Control of Tracfone Wireless to Verizon Communications, Inc. AAI argues that Verizon’s acquisition of Tracfone raises significant concerns under the Commission’s public interest standard. The proposed transfer will eliminate the largest standalone rival (Tracfone) in the pre-paid wireless market and put it into the hands of Verizon, one of the “Big 3” facilities-based mobile network operators (MNOs). Verizon’s share of the pre-paid wireless market will increase substantially, while it continues to control the network access needed by smaller mobile virtual network operators (MVNOs) in order to resell pre-paid wireless services to consumers. The acquisition would cement an oligopoly in the pre-paid wireless market between Verizon, T-Mobile, and AT&T. These are very same companies that make up the Big 3 facilities-based MNO oligopoly created in the premium, post-paid market in the aftermath of the Sprint-T-Mobile merger only a year ago. Both the pre-paid and post-paid wireless markets in the U.S. would thus be fundamentally restructured in the space of two years, to the detriment of competition and consumers. AAI’s urge the Commission to assess the proposed transfer in light of this bigger, troubling picture of a restructured wireless communications sector.

AAI’s Reply Comments spell out the concern that the proposed transfer will likely have harmful horizontal and vertical competitive effects in the market for pre-paid wireless service, leading to higher prices, lower quality, and less innovation. These effects would be felt by an important segment of consumers that have already been hard hit by the COVID-19 pandemic, economic downturn, and other disruptions. These concerns have been either ignored or downplayed in the Application, which waves away competitive issues and makes broad and unsupported claims of public interest benefits. Verizon’s motivation for acquiring Tracfone, namely, to secure its own “flanker” brand, only highlights this flaw, since the acquisition would enhance its incentives to extend its already considerable market power to the market for pre-paid wireless service. AAI therefore urges the Commission to deny Applicants’ proposed transfer in order to preserve competition in the market for pre-paid wireless service and protect the consumers who depend on it.

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AAI Urges Supreme Court to Reject NCAA’s Antitrust Arguments in Dispute Over Paying Student-Athletes (NCAA v. Alston)

AAI has filed an amicus brief urging the U.S. Supreme Court to categorically reject the NCAA’s arguments seeking to overturn a Ninth Circuit ruling that upheld an antitrust challenge to the NCAA and its member institutions’ limitations on student-athlete compensation.  After a class of players successfully challenged the NCAA’s and schools’ compensation rules as an illegal trade restraint in the labor market for athletes’ services, the appellate court issued a compromise ruling that allows the athletes to be paid in excess of their tuition and grants-in-aid, but not unlimited sums.

In the district court the NCAA and its member institutions had argued that their compensation rules benefit the athletes, schools, and consumers of college sports products. However, on appeal to the Ninth Circuit, they waived the argument that the rules benefit the athletes, choosing to focus instead on the benefits to schools and sports fans. In December 2020, they successfully petitioned the Supreme Court to review the Ninth Circuit’s ruling, continuing to press the argument that benefits to schools and universities should offset any competitive harms to athletes.  They also argued that the lower courts erred by refusing to accord deference to what amounted to the product-design decision of a beneficial joint venture to produce college sports products.

AAI’s brief urges the Court to categorically reject the NCAA’s and its member institutions’ arguments.  First, federal courts are not permitted to engage in “multi-market balancing.”  The antitrust laws protect competition in upstream markets, which benefits workers, on equal terms that they protect competition in downstream markets, which benefits consumers.  And under the statutory terms of the Sherman Act, a century of precedent, and the national Congressional policy favoring competition as the rule of trade, federal courts have neither the authority nor any practical ability to trade-off the value of competition in one market against the value of competition in another market.  This is a policy question reserved for the legislative branch, and Congress answered the question already by enacting the antitrust laws.

AAI also argues that the Court should reject the invitation to create a “product-design” exception to the ancillary restraints framework that governs joint ventures under the rule of reason.  Substantive and economic realities have always guided judges in antitrust cases.  Courts do not inquire as to a joint venture’s preferred label for a restraint, but rather whether the restraint, as a factual and economic matter, is necessary to effectuate the procompetitive purpose of the joint venture.

The brief was written by AAI Vice President of Legal Advocacy Randy Stutz and AAI Vice President of Policy Laura Alexander, with assistance from AAI Research Fellow Berk Bahceci.

Two professors on AAI’s Advisory Board, Michael Carrier and Chris Sagers, also filed an amicus brief in support of the Student-Athletes on behalf of 65 professors Law, Business, Economics, and Sports Management.  The professors’ brief, signed by numerous other members of AAI’s Advisory Board, explains why the NCAA’s arguments misapply the rule of reason and wrongfully assume the power to justify trade restraints on the basis of values other than their competitive effects.

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Peter Carstensen Analyzes Poultry, Pork, and Turkey Class Actions and Calls for Agency Intervention

AAI Advisory Board Member Peter C. Carstensen published an analysis of the recent series of class-action antitrust settlements with poultry, pork, and turkey processors, stating antitrust enforcers should intervene. “Paltry Poultry Settlements and a Paralyzed Public Interest Protection” appeared on March 8, 2021 in ProMarket, a publication of the University of Chicago Booth School of Business. Read the article here.

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AAI Issues Update on Digital Technology: The Failure of Merger Enforcement and Need for Reform

The American Antitrust Institute (AAI) has released the White Paper, Update on Digital Technology: The Failure of Merger Enforcement and Need for Reform. The new White Paper updates and expands on analysis AAI originally released in July 2019.

The widely cited 2019 AAI White Paper, The Record of Weak U.S. Merger Enforcement in Digital Technology, was the subject of AAI testimony before the Senate Judiciary Committee and drew attention to the acquisitive history of the five largest multinational online service or computer hardware or software companies: Amazon, Apple, Facebook, Google, and Microsoft (“Big Tech”). It also unpacked the history of merger enforcement under Section 7 of the Clayton Act in a major segment of the digital technology sector. The White Paper concluded that, as compared to enforcement across all sectors, the rate of merger challenges in digital technology is exceptionally low.

Since then, much has happened in the digital technology sector. Big Tech has solidified its hold on the top-most slots, by market value, in the Fortune 500. Federal and state monopolization cases have been filed against Google and Facebook. Among other things, the Facebook complaints allege that acquisitions of small rivals, such as social media firms Instagram (2012) and WhatsApp (2014), were a strategy to snuff out potential competition to maintain a monopoly in personal social networking services. The public policy debate over the dominance of Big Tech has also generated numerous proposals to remedy competitive and consumer harm, including breakups and digital market regulation. A 2020 House Judiciary Committee report examined competitive issues raised by the platforms that are at the core of many of the large digital ecosystems. Moreover, the digital ecosystems have been the subject of ongoing economic, business, and policy research, which has advanced the state of thinking over potential policy solutions to the problems they raise.

Results of AAI’s updated analysis indicate that expansion by acquisition continues to be a leading method by which the large digital ecosystems grow. Enforcers can expect to see further growth that, when juxtaposed with persistent, weak merger enforcement in the sector, will likely exacerbate competition problems. Indeed, stronger merger enforcement over the last two decades would have mitigated the monopolization concerns that AAI sees now. As it stands, however, Section 2 of the Sherman Act is virtually the only antitrust tool left to combat dominance in the digital technology sector. This White Paper turns first to updating data on acquisitions by Big Tech through 2020 and merger enforcement statistics through the latest available reporting year, 2019. It then examines the implications of Big Tech’s likely trajectory of further expansion through acquisition and growth in critical cloud infrastructure capability. It closes with an analysis of reforms necessary to revitalize merger enforcement in digital technology.

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Class Action Issues Update: The Latest Developments and Looking Ahead to 2021 and Beyond

As part of its work to preserve the effectiveness of antitrust class actions as a central component of ensuring the vitality of private antitrust enforcement, the American Antitrust Institute issues periodic updates on developments in the courts and elsewhere that may affect this important device for protecting competition, consumers and workers. AAI’s Randy Stutz is joined by Hausfeld LLP’s Bonny Sweeney to discuss AAI’s Fall 2020 Class Action Issues Update and look ahead to 2021 and beyond.

They discuss classes containing uninjured members, common impact, statistical evidence (and related litigation strategy), TransUnion v. Ramirez and the Supreme Court’s new makeup, class-action legislative developments and goals, and the relationship of public and private enforcement in prosecuting Big Tech cases.

MODERATOR:
RANDY STUTZ, VICE PRESIDENT OF LEGAL ADVOCACY, AMERICAN ANTITRUST INSTITUTE

GUEST:
BONNY SWEENEY, PARTNER, HAUSFELD

 

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AAI Files Comments Opposing Proposed Rule Exempting Many Partial Acquisitions from Hart Scott Rodino Reporting Requirements

The American Antitrust Institute submitted comments on February 1, 2021 on the U.S. Federal Trade Commission’s (FTC) proposed changes to the Hart Scott Rodino (HSR) reporting requirements. AAI supports some of the proposed changes that will make needed updates to HSR reporting to keep pace with new business models and practices.  As AAI explains in its comments, however, it opposes the proposed rulemaking’s provision that would exempt from reporting many partial ownership acquisitions, including many involving private equity and institutional investors. The proposal comes at a time when increased—not decreased—scrutiny of partial ownership transactions is needed. AAI has been at the forefront of the push to recognize and understand the competitive harm that can flow from partial ownership transactions and has repeatedly urged competition authorities in various sectors to pay more, not less, attention to these transactions. AAI’s comments explain why the exceptions to the reporting exemption in the proposed rule are not enough to address these concerns, as they leave it up to companies themselves to decide who is and is not a competitor in an approach akin to the “fox guarding the henhouse.” AAI concludes that the proposed reporting exemption does not serve the interests of competition and consumers, particularly in light of concerns over rising concentration in the economy and many critical sectors.

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Modern Farmer Highlights AAI-NFU Op-Ed: Don’t Stop at Big Tech – We Need to Bust Big Agriculture, Too

AAI President Diana Moss and National Farmers Union President Rob Larew teamed up on an op-ed highlighting competition concerns in agriculture. The opinion piece, which appeared in Modern Farmer on February 3, 2021, highlights competitive concerns in the agriculture industry. The piece, “Don’t Stop at Big Tech – We Need to Bust Big Agriculture, Too,” follows.

Amid Congressional investigation and federal, state and private antitrust cases, all eyes are on Big Tech. The step up in antitrust enforcement against the digital technology behemoths and their alleged abuses of market power is, by all accounts, good news. Successful cases could restore competition, which would benefit smaller businesses and American consumers alike. And after decades of under-enforcement of the antitrust laws in the United States, these cases could deliver some base hits—and even home runs—for a critical area of law enforcement.

But the outsized media, political and social attention paid to the tech industry has diverted focus from other important sectors. There are monopolies and domestic cartels elsewhere—in healthcare, pharmaceuticals, media and communications, as well as food and agriculture. These industries produce goods and services that are essential to the health, safety and well-being of consumers, and even to our national security, which is why antitrust laws must be enforced against violations in these sectors, too.

The food system has been particularly fertile ground for rising concentration, the emergence of dominant firms and formation of domestic cartels. Some of the largest players have been allowed to engage in anticompetitive mergers and practices that are as serious, if not more so, than those of which Big Tech stands accused.

Much like their counterparts in the tech sector, many of the largest food and agriculture corporations have acquired their way to dominance by gobbling up rival businesses. This has occurred across the food system, including digital farming startups, biotechnology firms, food manufacturers, flour millers, farm machinery manufacturers and grocery store chains. But nowhere has it been more pronounced than agricultural inputs.

In acquiring competitors both small and large, the six biggest agricultural biotechnology firms collapsed rapidly into the Big Three—Bayer, DuPont and ChemChina. This wave of consolidation, which was met with little resistance from antitrust authorities, gave these corporations control of proprietary, multi-level systems of traits, seeds, agrochemicals and digital technology that limit farmers’ choices and lock them into limited cropping systems.

But some parts of the agricultural sector are rife with other damaging antitrust violations that we haven’t seen in Big Tech. This includes alleged conspiracies to fix prices and allocate markets—practices that are made possible by high levels of consolidation and concentration.

One of the most notable examples of this is in beef packing, where the top four firms now control about 85 percent of the national market. Given the market power that the packers possess, it comes as no surprise that they have allegedly abused it: On multiple occasions, these packers have been accused of colluding to pay ranchers less for cattle and charge consumers more for beef.

However, this behavior isn’t unique to the beef-packing sector. Similar allegations of price fixing have been leveled against tuna, chicken, turkey, egg, pork and peanut producers, among others. These cartels are especially egregious because processors allegedly collude on both the sell and buy sides, hurting both farmers and consumers—including independent restaurants and grocery stores.

Beyond anticompetitive practices, rising concentration has implications for our national food security. Concentration-driven bottlenecks along the supply chain make the entire food system vulnerable to disruption, a fact that has become painfully obvious during the pandemic. Following a rash of COVID-19 outbreaks at meatpacking plants, national meat processing capacity declined by nearly half, resulting in supply chain breakdowns and price gouging that affected millions of Americans—many of whom were already experiencing food insecurity.

If disruption in the food supply system weren’t enough, the communities that support our food system are also at risk. Foreign companies now own a non-trivial portion of the United States’ farmland and food system. These entities not only resist food labeling and regulations that protect and inform consumers, they also take jobs and resources out of rural communities, accelerating social and economic decline and suppressing the growth of independent businesses that would contribute to revitalization.

Kudos to antitrust enforcers for finally taking aim at Big Tech. Monopolization cases—if they produce meaningful results—will improve the welfare of hundreds of millions of people that engage in online search, social networking and shopping. But we should not stop there. Americans depend on a safe, functional and resilient food system at least as much as they depend on their social media networks or ability to search the internet. Antitrust enforcers must turn their attention there next.

Rob Larew is president of National Farmers Union, which represents 200,000 family farmers and ranchers across the country.

Dr. Diana Moss is the president of the American Antitrust Institute, which is devoted to promoting competition that protects consumers, businesses and society.

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Antitrust Litigation in the Age of Big Data: How New Technology is Harnessed to Enforce the Antitrust Laws and Return Money to Victims

In this podcast, AAI Vice President of Policy Laura Alexander sits down with two leaders in private enforcement who are driving the use of data and technology to win antitrust cases and get money back into the hands of consumers and other victims. Adam Zapala, a partner at Cotchett, Pitre & McCarthy, LLP, and Eric Schachter, a Vice President at A.B. Data, Ltd., discuss how digital technology, big data, and AI have increased efficiency and enabled them to bring and win cases that would not otherwise have been possible. Zapala and Schachter begin with a discussion of class notice and other manageability concerns. The far-ranging discussion, however, quickly turns to the use of social media and data analysis to detect conspiracies, the prospect of paying out class action settlements in cryptocurrencies, and how future privacy legislation may impact the tools that class administrators use to effectively reach modern class members.

Moderator:
Laura Alexander, Vice President of Policy, American Antitrust Institute

Guests:
Eric Schachter, a Vice President at A.B. Data, Ltd.
Adam J. Zapala, Partner, Cotchett, Pitre & McCarthy, LLP

 

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AAI Issues 2020 Impact Report: Highlights Continued Leadership in Competition Research, Education, and Advocacy

Today, the American Antitrust Institute issued its 2020 Impact Report. The report highlights AAI’s major initiatives and impact in 2020 and continued, long-term leadership in progressive competition research, education, and advocacy. The report illustrates how AAI’s work has a measurable, positive impact on the consumers, workers, and businesses that are at risk from the accumulation and exercise of market power. As AAI begins 2021 with a full agenda, the organization will work to continue to promote vigorous enforcement of the antitrust laws, and the competition policies and legislative reforms that support it.

Download Impact Report